Countdown to Liftoff

According to the talking box in my living room, the Fed is going to raise the overnight funding rate and (insert thinly developed quasi-logical market reaction here).

Yesterday on Rapido the always refreshingly frank Josh Brown of Ritholtz Wealth Management responded to a condescending anchor inquiry with, "How could I know what the market will do? It might go up it might go down." The producers don't like it (I know from experience) but the answer is honest and accurate.

Here's a brief history from our data base:

Jan 2011 -- .78

Jan 2012-- 1.13 (Arab Spring, Hungary, EU debt mess)

Jan 2013 -- .84

Jan 2014 -- .58

Jan 2015 -- .63 Today .713

In Jan of 2012 Germany had the lowest unemployment since 1991 and Spain had the highest ever recorded. The data set show that the only "rate rise" feedback from the money market over the last 5 years has been crisis induced. Our model suggests an equilibrium level of FF (Fed neither easy nor tight) of .11 today. Hmmm, the actual rate is 12-11.

If the FF window goes up to .12 to .37 and settles quietly around 25, then the money rate will need to go to AT LEAST .85 (given a first move, several more should filter in suggesting a rate over 1%). If not, the Fed moves to a "tight" calibration too quickly. The like rate for funding Euros is a paltry .21  ! This dislocation will increase the difficulty of "flooring" the Funds rate and - wait for it - possibly force the firing of the Death Star in real time.

The SP has been +1.25% down .6%, up 1.35% and down .45% in the last 4 sessions. What's it going to do tomorrow afternoon? Pulleeeease !

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