There's an old story, though we've never verified either it's origin or it's veracity, about some young Harvard guys sitting around tossing a chunk of gooey-gunk that reportedly became a best-selling toy against their office wall to see if it stuck.
From our view that's what next week's Fed rate hike--if it happens--will turn to be about. The market of course will twit and twitter over patience--that is, how much the Fed will display before further bumping up rates should their pile of trailing indicator data so dictate.
The meme being the threat of rising rates lower stock prices. (See Friday's market selloff.) But patience is probably an incorrect term. Paralysis comes to our mind, but we're certain many Fed defenders will take issue with that. After all, after all this time, that request of the late Rodney King is still floating around out there.
With the current market worry about junk bonds safety becomes a bigger priority that might be somewhat helped by higher interest rates. The numbers on Third Avenue high yield fund tell an interesting story. The term panic might not be an overstatement here.
According to what we've read, last summer, approximately 18 months ago, the fund had $3.5 billion in assets. As of last week it had plunged to $789 million. Some might call that a haircut. We call it, PC hall monitors aside, a scalping.
The odds on a rate hike next week have changed somewhat given Friday's big selloff in stocks and the latest high yield bond nightmare. And if you look there are other troubling signs in emerging markets, to mention just one. So the Fed, which has self-inflicted much this damned-if you-do, damned-if-you-don't scenario, will be forced to show its hand, one way or another.
As a neighbor of ours who lives and inhales the marker recently said:"It couldn't happen to nicer bunch of incompetent bureaucrats."
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