LET'S GET GOING - It's becoming increasing difficult to see a scenario where the Fed doesn't finally go ahead and raise rates this year. The market has been begging the Fed to stay away from doing anything in September, but what difference does it make? The US economy is improving and policy at current levels simply isn't justified. Moreover, what leverage will the Fed have when inflation does finally shoot up, as it inevitably will and the global economy is still struggling. This would be a scenario where stock markets are sinking and the Fed is forced to raise rates. But at that point, the Fed won't be raising rates because the economy is doing well, rather the Fed will be raising rates because of inflationary pressures. This is not a road I think the Fed should go down. Let the Fed go ahead and raise rates just a bit right now and send a message that it is raising rates because the economy is doing well.
USD STILL KING - Yes. Perhaps stocks fall on this move. But so what? Stocks have already enjoyed a monster rally since 2009 and the real economic recovery doesn't hinge on higher stock prices. The real economy needs higher rates now. I think this ultimately translates into a higher Dollar going forward. There are those that say once the Fed actually raises rates the Dollar will sell-off. And while that may be true, when you look at the odds for a September rate hike, they still only stand at less than 40%. So there is plenty of Dollar upside yet to be priced in if the Fed does go ahead and raise rates this month. I don't think the volatility we saw last week has come and gone. I think it came and there will still be plenty more of shakeup ahead. So in the end, more USD strength and more equity weakness. No specific new trade ideas just yet. Stand by.