The Ides of March

I know, the Ides of March is usually recognized as landing on March 15 and so I’m a little early! In early Roman calendars, the “Ides” happened near the mid-point of the month and was supposed to be determined by the full moon. According to the earliest Roman calendar, the Ides of March would have been the first full moon of the new year.

The Ides of March was also sacred to the Roman supreme holy being: Jupiter. In fact, Jupiter’s high priest sacrificed a sheep on the occasion.

But what really marked the Ides of March – and gave it the aura of bad luck – was the assassination of Julius Caesar in 44 BC. William Shakespeare dramatized the event in his play Caesar, during which a mystic warned the emperor to “beware of the Ides of March” just before his demise.

Caesar’s death was ultimately avenged on the fourth anniversary of his murder when his sole adopted heir, Octavian, executed 300 senators and knights who fought against Caesar. Bad luck for them on the Ides of March!

I think mysticism and superstition are a bunch of hogwash but sometimes they can make for interesting chatter or maybe even a good movie! But the reason I warn you (like Shakespeare’s soothsayer) to beware of the Ides of March, is because there are a couple risks in the financial markets to beware of right now.

The stock market seems, at least for now, to be ignoring any possible risk, but Treasury bonds are taking the words from various Fed officials to heart. When the Fed last hiked in December, they promised three more rates hikes for 2017. But since they promised four hikes in 2016 and only delivered one, the markets seemed to initially ignore the threat. That is, until a couple weeks ago…

One of the most effective policy tools of the Fed is talking. In the name of being transparent, the Fed believes it can move interest rates in one direction or another by just talking, suggesting, nudging… Well they can nudge all they want but they also have to be believable too. They lost a lot of credibility last year when their talk fell well short of meaningful action.

Over the last few weeks, a number of Fed officials said a rate hike is likely on March 15. And it’s not just the officials who are usually more prone to hike (we call them hawkish), but also a few that usually are more cautious (dovish) have chimed in that it’s time for a hike.

Interest-rate markets have digested the data which is showing increased inflation near the Fed’s 2% target. Employment data has also been improving and the level suggests that we’re near full employment. Wages have been on the rise, albeit a slow rise, and participation in the labor force is still near 30-year lows but hey, who’s counting?

Actually, even though the Fed’s dual mandate of having maximum employment and price stability has been satisfied, they should still hike even though the full economic picture is still shaky.

As I mentioned in last month’s Economy & Markets, retail sales have been pathetic and the economy barely grew at 2% last year, which doesn’t make for a robust picture of health. I’m sure the Fed is concerned about risking another slowdown or even a recession with a rate hike but their mandate has been achieved.

Aside from economic risks here in the U.S., the Fed has previously cited potential risks from overseas (that haven’t materialized!)for not raising rates.

So, absent any new risk or market instability between now and then, a rate hike seems to be in the cards for March 15. The markets have priced in a likelihood of a near certain hike in short-term rates, which means no rate hike would be more of a surprise to the markets.

The other event that could put a damper on March 15 is the fact that the federal government’s debt ceiling is due to be reinstated. We are only a few days away and President Trump hasn’t even tweeted about it! Do you dare turn back the clock and relive the last debt ceiling crisis that shut down the government? That feels like a million years ago…

In a budget deal worked out in 2015, Congress and the Whitehouse suspended the debt ceiling and authorized any amount of new debt during the remainder of Obama’s presidency. The limit is now Trumps problem and will be reinstated March 15. This will have to be dealt with at some point between then and when the coffers run out of cash (revenue and cash on hand) to pay the bills. That is estimated to be sometime in October or early November.

On March 15, lawmakers will have to start talking about raising the debt ceiling again or maybe even suspending it like they did a couple years ago.

With a Republican majority in both houses and the Whitehouse, I’m sure it won’t be a big problem. And with all the plans to spend more on defense and building the wall along with other infrastructure projects, our political leaders need to act… especially since Trump want to cut taxes to boot!

A looming debt ceiling reinstatement and a likely Fed rate hike are just a couple ominous clouds on the horizon next week. Since the stock markets are perched near all-time record highs, anything that might spook sellers into action is worrisome.

So in this case, it might just pay to beware the Ides of March!

Good investing,

 

 

 

 

Lance
Editor, Treasury Profits Accelerator 

Harry Dent’s Most Disturbing Prediction in Years

Harry Dent, one of the most respected economists in the industry, has uncovered a disturbing market event that could soon devastate millions of investors. In short, he has undeniable proof that one of the market’s safest and most popular investments is about to get slaughtered… and it will have dire consequences for those who don’t prepare right away.

For full details on the event Harry’s dubbed as the “Safe-Asset Slaughter”… and to ensure you escape the coming carnage, I urge you to watch this special presentation.

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Categories: Interest Rates

About Author

Lance Gaitan graduated from Franklin University in Columbus, OH with a degree in Finance. After graduating and working as an auditor for an insurance administrator as a number of years, he attained his securities license. He then went to work as a broker for a small firm and during the mid-1990’s Lance managed the futures trading desk for Piper Jaffray, a large regional brokerage firm based in Minneapolis. After migrating to Florida in early 2000, Lance founded a futures trading firm, GSV Futures, specializing in retail commodity trading strategies. Lance sold that business in 2006 and joined Harry Dent, Jr. and Rodney Johnson at Dent Research shortly thereafter.