Funds remained unchanged

First reaction good, second bad.  My first read is pretty neutral.  Took away some global risk, buffed view on labor, down on data/economy.  I’d read this a touch dovish.  I wouldn’t get into a fist fight with someone who read it the other way.  I just can’t see us breaching 2 purely on the basis of the statement.  I wouldn’t rush to 1.65 either.  My vote, 1.65-1.99 range intact.  I'll read it further and reserve the right to shift my opinion.  Otherwise, on to tomorrow’s GDP.  

Before I get into my rant, I’ll just say that I’ve gone through the statement and maintain the thoughts above.  I found it to absolutely be slightly Dovish as they were down on the data a bit. The mitigating factors I mentioned surely take a huge edge off of that however.  

OK, on to my thoughts. The disclaimer is that what you are about to read is not intended to shape your lock/float decisions in the near term.  Rather a longer term view on rates in 16.  

Simply put, what are the reasons the Fed likely WON’T HIKE any time soon:

1.  Election

2.  Data Stinks

3.  Economy wobbly

4.  No inflation

5.  Global economic pressures

6.  Unwillingness to act too soon

Here are the reasons the Fed WILL hike:

1.  Jobs data seems to be strong

2.  They want to

Further, here are some reasons rates may stay low even if the Fed does hike

1.  Jobs data incongruent with economic data

2.  Global rates are low, even negative

3.  Fed seems to never be right about their economic optimism

Therefore

1.  If we aren’t sure the economy is solid and we are in an election year, how could they raise rates just because they want to.

2.  Bond traders, as we’ve discussed, will cut through the BS.  They don’t care if jobs look strong if the underlying data contradicts that and the economic data doesn’t support the notion that the economy is doing well just on the basis of job growth.

3.  If global rates stay low (IF), at some point they would anchor US rates just on the basis on value if 1 & 2 remain intact.

Look, I don’t see two hikes this year.  Nothing today changes that.  If we see negative tomorrow GDP as some have suggested today, I believe that further solidifies that.  I believe those that are betting on a February Hike and not Sept, Oct or Dec are in the right corner.

PS I reserve the right to change that viewpoint after tomorrow.  After all, this is a long term play.

PPS  10 year solidly rallying now.  TBAs widening solidly as well. That means mortgage rates not going lower even though bond yields are.  We are roughly flat or just slightly ahead of levels seen this morning.  I wouldn’t expect any reprices at these levels.  I said earlier, range well intact.

Great month, Let’s make May even bigger!!!

Philip N. Mancuso, Chief Investment Officer

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