Who’s Ready for the Fed to Chicken Out This Week?

Michael E. Lewitt

This week, the U.S. Federal Reserve is the most powerful market-moving group on the planet. Pretty scary.

For months everyone's been certain the Fed would raise rates in December. They're being dragged kicking and screaming into raising interest rates for the first time in nine years.

But after the market action Friday, all bets are off.

The high-yield credit market is officially in a Super Crash. It's as bad as 2008-2009. If you're not invested, this means crazy opportunity ahead – I'm talking "buying a dollar for 10 cents" kind of opportunity. More on that very soon, right here.

If you look at credit spreads, oil, and numbers like the PMI, it would be unprecedented for the Fed to raise rates in such an ugly environment, but these are unusual times and this Fed is unusually incompetent.

I would note that the Purchasing Managers' Index – the headline indicator of the ISM Manufacturing Index – is under 50 (November's official PMI was 48.6), dropping for the first time in 36 months. In 2011, when the PMI hit 50, the Fed launched QE 3, and when it hit 50 again in 2012, the Fed launched QE 4.

Frankly, it doesn't matter one whit whether the Fed raises rates this week or not. It has already mismanaged another credit cycle and one cowardly 25-basis-point move coupled with a bunch of words designed to soothe spoiled markets about how it won't be followed by more hikes won't absolve the Fed of its sins.

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Michael E. Lewitt

About the Author

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Prominent money manager. Has built  top-ranked credit and hedge funds, managed billions for institutional and high-net-worth clients. 29-year career.

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