What Gets Done In 2014

In today’s report, we catalogue what we expect to get done before the election, what we expect to get done during the lame-duck session after the election, and issues where Congress won’t be able to come to agreement at all this year. The only legislation of consequence to investors that we expect to pass this year that isn’t routine business (such as funding the government or reauthorizing existing programs) is a response to the problems at VA hospitals. And we comment on corporate inversion.


The FOMC Meeting This Week – Looking For Subtle Signs

The FOMC meeting will conclude on Wednesday. There will be a statement issued but no press conference. It will be important to watch the language of the statement for subtle changes that could signal more conviction in a mid-2015 liftoff for the funds rate. We discuss what language to watch for and whether the whole statement is more likely to be hawkish or dovish relative to current market expectations. We also comment on the VA health care agreement. On Wednesday, July 30 at 2:30pm ET, Roberto is hosting a short webinar to give his quick take on the July FOMC … Read More »


Roberto’s Video Update: Should Investors Fear The Fed? Why Tightening And Reverse Repos Are Not Dangerous

Main Points:
- What are the concerns we hear about Fed policy from investors?
- How do the bond and stock markets react to Fed tightenings?
- What can we expect from the markets this time?
- Should investors worry about adverse effects of the reverse repo facility? Read More »


What Investors Need To Know About The Fed’s RRP Facility & Week In Review

The Fed intends to use a reverse repo (RRP) facility to raise the federal funds rate above zero whenever it will be appropriate to do so (June 2015 is our baseline for now). Most investors don’t need to master all the details of such facility; in today’s report we summarize what’s most important. In particular, we explain what the facility is intended to do, why it doesn’t change the amount of future expected tightening, why it should not cause massive deposit outflows from banks, and why it does not pose significant systemic risk. Also in today’s report we provide a … Read More »


Market Reaction To Fed Tightening: Will History Repeat Itself?

It is too soon for the market to react to Fed rate hikes; however, the market has historically adjusted well in advance of the first tightening. If the Fed sticks to its guns, at some point the market will have to come to terms with the fact that the fed funds rate will go up sooner and especially faster than is currently priced in. In today’s report we look at the bond and stock market reaction in the past five Fed tightening cycles and summarize our findings in order to discern how things might play out this time around. On … Read More »


Court Ruling Would Allow States To Opt Out Of Much Of ACA

A three-judge panel on the DC Court of Appeals ruled yesterday 2-1 that individuals receiving health insurance on federally-operated exchanges are not eligible for subsidies. A couple hours later a three-judge panel in the Fourth Circuit ruled unanimously that those subsidies are permissible under the ACA. If the Supreme Court ultimately decides that the ACA does not permit subsidies for those receiving insurance on federally-run exchanges, red-state governors would have the ability to opt out of much of the ACA – and many of them probably would.


Polls In Individual Senate Races And Obama Approval Suggest GOP Edge

Less than four months from the election, polls in the closely contested Senate elections and Obama’s approval rating suggest Republicans retain an edge to win a majority in the Senate come November. Obama’s approval rating has remained remarkably constant this year. But it is low, and that means a rough overall political environment for Democrats. Of the eight most competitive Senate races, six of which are currently held by Democrats, the polls are within three percentage points using the RealClearPolitics average in every one of those races. We also comment on corporate inversion, a Senate report on tax avoidance, Texas … Read More »


Defense Spending Would Get A Boost From GOP Senate

Growing threats to US national security and general global unrest is leading to only marginally more congressional support for higher defense spending. Events in Ukraine and Israel during the past few days probably haven’t made much of a difference, and defense spending levels for next fiscal year are very likely to track the Ryan-Murray agreement from last year. For defense spending to rise above the budget caps agreed to in 2011 (which are well above the sequester levels), would probably require a broad-based budget deal that also cuts entitlements, which has zero chance of happening this year and is unlikely … Read More »


Roberto’s Video Update: Geopolitics And Monetary Policy – What Ukraine Could Mean For Global Central Banks

Main Points:
– It’s too soon to assume major central banks will shift policy – it depends on sanctions.
– Which economies and banking systems are the most exposed to Russia?
– The Fed and BOJ can wait before making any decisions.
– The ECB has less time to react if the situation deteriorates. Read More »


Implications Of Escalating Tensions Over Ukraine

Early evidence strongly suggests Russian-backed separatists are responsible for shooting down the Malaysian commercial airliner over Ukraine yesterday. If Russia doesn’t take steps to ease tensions immediately, the US will support and the Europeans are likely to at least consider much tougher economic sanctions on Russia. In today’s report, we consider how yesterday’s events could impact economic policy in the US and Europe.