The Fed has always been a shortcut for discussions of financial market developments. So, the argument goes, liquidity is drying up for high-yielding assets because the Fed is allegedly poised to raise the federal funds rate by 25 basis points. And then, it’s anybody’s guess what they will do next.
The price of oil (WTI) crashing to $35.62 on Friday is also seen as an ominous stock market event, despite the fact that the crude’s 44 percent decline from the year earlier is a huge bonus to consumers’ real purchasing power. That is what some analysts think of a great gift from the Saudis and the Russians, whose onshore marginal production costs ($3 and $13 per barrel, respectively) still allow them to make money while driving high-cost competitors out of the market.
These views are puzzling. The declining demand for high-yielding assets, for example, simply means that they are not offering adequate risk-adjusted returns.