“For the rest of the year, we think global credit risk will veto the Fed’s policy path (no hikes) and therefore, gold and the gold miners are going to do very, very well in that environment in 2016.”

Bear Traps Report’s Larry McDonald, January 2016 on CNBC

Aspen Institute in Aspen, Colorado on Sunday

Today, Federal Reserve Vice Chairman Stanley Fischer said the U.S. economy moving ever so near to the central bank’s objectives and he expects growth to pick up in the future.

As a key member of Janet Yellen’s inner circle Stan Fischer’s words carry 10x the weight of non voting, regional Fed bank presidents.

Air Pocket

Considering over 3000 current Dow (Dow Jones Industrial Average) points are supported by the easy money Fed gravy train, we recommend keeping yours eyes and ears on him.

The Bloomberg dollar index is off 3% over the last 20 days while gold has been stuck in a trading range.

“We are close to our targets..  Looking ahead, I expect GDP growth to pick up in coming quarters, as investment recovers from a surprisingly weak patch and the drag from past dollar appreciation diminishes.”

Stanley Fischer

Over 547,000 new jobs have been created in June and July, so why is the Fed so cautious on the 2016 rate hike?

Fed’s Fischer

U.S. Job Market:  “remarkably resilient”
U.S. GDP Growth: “mediocre at best.”

Fischer trying to balance out is speech here.

December Rate Hike vs Bloomberg Dollar Index*

Today: 52% vs 1166
Month Ago: 43% vs 1198

*weaker dollar with higher rate hike probability

Bloomberg data

We’re witnessing a remarkable divergence between the U.S. dollar and Fed Fund Futures.  The dollar has plunged 3% over the last 20 days while the futures market is pricing in a much higher chance of a December Fed rate hike.

Fischer Balancing Hawkish Comments with Dovish Concern

“A 1.25 percentage point slowdown in productivity growth is a massive change, one that, if it were to persist, would have wide-ranging consequences for employment, wage growth, and economic policy more broadly,”

Stan Fischer

Fed Fund Futures vs Fed Dots*

Effective Fed Funds

Today: 0.40%
2017: 0.65% v 1.60%
2018: 0.78% v 2.36%

*Fed’s projections on rates

Bloomberg data

The futures market is giving the Fed the Rodney Danderfield, “no respect”.  Traders are pricing in just one rate hike between now and the end of 2018.  On the other hand, the Fed dots are pointing to seven rate hikes over the same time frame.  This disconnect cannot stay this wide, it’s unsustainable.

Fed officials next meet Sept. 20-21.   We will listen closely for additional clues on timing when Fed Chair Janet Yellen speaks Aug. 26 at an annual in Jackson Hole, Wyoming.

In recent years sell side dealers like Goldman, Bank of America and Citibank have been aggregating their client holdings data from their respective prime brokerage units.

After a look under the hood, they analyze the data to come up with themes and trends.  We spend a lot of time reading street research and developing our own conclusions, most of all looking for crowded trades.  Since late 2013, the one investment strategy that’s been very successful has been found in determining in what moments too many investors are crowded on “one side of the boat”.  With rates near zero globally, returns have become harder and harder to come by, the net result is a lot of clowns stuffed into one corner of the market reaching for alpha.

One thing we stress to subscribers is DON’T over trade.  Over the last 3 years if you sat in the boat and waited for real fear, then put money to work, you’re likely doing better than the market.   Of course, this is easier said then done.  The Put-Call Ratio has been a solid buy signal.  We recommended subscribers buy both the Brexit and China devaluation panic.  One reason why is found in the put call ratio.  Since late 2013, if you bought stocks while everyone is buying puts you have done very well.