The thing about flat stock markets [The Market Is Running Out of Breath & Breadth]

Fortune ^ | July 30, 2015 | oshua Brown

[expat_panama]

Flat markets, like the one we are in right now, do not suggest any particular outcome when the S&P 500 finally breaks out of its slumber.

You might have looked at your last brokerage statement and wondered why you’re no longer seeing the asset balance increasing like it had been. You may have taken a glance at your 401(k) the other day and wondered why it’s barely budged since Thanksgiving, excluding the contributions you’ve been making every two weeks.

You’re not crazy. The U.S. stock market has essentially gone nowhere...

[snip]

Market watchers have noted that the trading range (difference between the market’s highs and lows) so far in 2015 is among the narrowest ever recorded. The fact that this sort of mass indecision is transpiring just a few percentage points away from record highs is a fascinating development and possibly presages a major turning point in the predominant trend.

Put simply, we’re running out of both breadth and breath.

The important thing to remember, however, is that flat markets are not necessarily predictive of what will happen in the immediate future. I took a look at the historical record to get a sense of what happens when the S&P 500 finishes the first seven months of the year flat.

[snip]

Flat markets do not necessarily suggest any particular outcome when the S&P 500 finally breaks out of its slumber. It’s been down three times, flat once, and markedly higher in the other eight instances. All those narratives on what’s about to happen based on the current trading range should be discounted or ignored with extreme prejudice. The most common resolution has been a gain with much less volatility than usual, but the outcomes have been all over the map.

Keep this grain of salt handy...

[expat_panama]

ZIRP bailed out bad banks

No banks were rescued by low rates.   Sure, there were  banks helped by TARP from Oct. 08 to Dec. 09 but the prime rate had already fallen way before that.  It's easier to argue that zero rates is what made the banks "bad" in the first place.

punished the prudent savers.

We may disagree as to whether sticking your life savings in a bank savings account is what we'd call "prudent" but any benefit savers get from interest later after setting aside money earlier has to be weighed against inflation.  We've had zero rates for the past half dozen years now and during that time the value of savings interest minus inflation has gone up.

I wholly blame terrible fiscal policy by Democrats from the local level to the federal level for screwing up the economy. Yet the FEDs response was...

What, after blaming the Fed for fiscal policy who're we going to blame next, the library?  The border patrol?  We know the library does not set fiscal policy and neither does the border patrol.  The Fed doesn't either.  That congress you elected does.

[1010RD]

I do not and did not blame the Fed for fiscal policy, they set monetary policy. I apologize for not clarifying who ‘the prudent’ are. The prudent include any person, investor, saver or bank that didn’t get caught up in the speculation fueling the bubble. The prudent waited for the day of reckoning which under a free market would have allowed them to reap the benefits of their prudent behavior by snapping up assets at reduced values and allow them to benefit from a higher interest environment.

What ZIRP does is allow banks that gambled by buying deposits to lower their costs, thus rescuing them. This is called “moral hazard”. They’re being rewarded for their imprudent behavior because a bank’s net interest margin (NIM) is the difference between their cost of funds (liability cost) and their asset yield. Banks with strong and stable core deposit bases previously had lower cost of funds than less prudent banks which had to compete for deposit based on enticing customers with higher rates.

[DuncanWaring]

Looks like unless the Federal Reserve starts buying more T-bills, the S&P 500 ain’t going anywhere.

[expat_panama]

That’s the story we’re getting from the goofy left, the idea that the reason stock prices aren’t growing is because of the fed and not because of tax’n’spending’n’regulatioins. In the meantime I’ll expect the next market advance when policies change in congress and your investing can hinge on fed policy.

[expat_panama]

Maybe the reason we're unable to find a common view here is becuase we're looking in different directions.  When you say the Fed's zero interest rate policy is rescuing risky bank, what I do is look at fed press releases for a zero rate announcement and then I look at bank profit growth.  Neither exists.

[expat_panama]

Remember that we're not looking at what the Fed says, and we're not even looking at the paper written by someone who working there wrote.  We're looking at what CNBC says is in the paper.  The link for the paper is https://research.stlouisfed.org/wp/2015/2015-015.pdf and I still haven't found what the headline says, but I did find:

ZIRP
The Feds zero interest rate policy is unprecedented in the post-Accord period(i.e. post-1951) in the United States. However, from a broader historical per-spective, ZIRP is nothing new, as John Landon-Lane points out in WouldLarge-Scale Asset Purchases Have Helped in the 1930s? An Investigation of theResponsiveness of Bond Yields from the 1930s to Changes in Debt Levels, hiscontribution to the Humpage volume. The nominal interest rate on Treasurybills was close to zero for much of the Great Depression period after the 1933banking crisis.
 

Reason that quote struck me as a surprise is because I hadn't found anything about ZIRP in a search of the Fed's site and I told 1010RD that it didn't exist.  Seems I was wrong and he was right after all!