"You know, this is the kind of term it's hard to define, but, you know, it probably means something on the order of around six months or that type of thing."
The new Federal Reserve chairwoman, Janet Yellen, had her first press conference and it was an interesting display of a battle of wills, where both sides blinked. Initially, I felt Yellen worked too hard to convince the Street that the Fed was still its friend, even as the current pace of tapering gets them closer to the real moment of truth - rate hikes. The Fed made it clear that as long as (official) inflation readings are subdued, it is not going to respond to any phony-baloney unemployment rates. Lower rates have been largely a function of a mass exodus from the jobs market all together.
When she was pleading with the market to hang in there, the selling eased and it felt like red arrows could become green, but then something interesting happened. The Fed Chairwoman slipped back to her Brooklyn roots and offered candid comments about a timeline for rate hikes. After promising rates would stay low for a "considerable time," someone asked during the question and answer period 'what that really meant.' Wall Street hated the answer! Her reply "six months" was shocking, which sent the market into a tailspin.
The babies on the Street ran like scalded dogs but really, they were more like spurned lovers.
At this point it is sickening, and to the point where the Fed can only move out of the way. If the economy is coming on, and if there is a chance of a rate hike in about a year that would mean the economy is coming on like gangbusters. It is hard to fathom that the US economy is coming on like gangbusters, especially if we think a 7.0% growth rate for China presages a Great Depression in that country, but at this stage a 4.0% growth would suffice. Break out the confetti and pop the champagne; except this event will be a punch in the gut for the easy money crowd.
I have done a lot of work on this, and the market will dip when the Fed begins to hike rates. However, I do not think it stays down and should be an event, where people are looking to buy weakness and not run for the hills.