The document discusses the possibility of the US Federal Reserve raising interest rates for the first time since 2006. It begins by reviewing the effects of past rate hike cycles on financial markets, noting that historically financials underperform while technology stocks outperform. It then presents three potential scenarios for how markets may react to an upcoming rate hike: 1) The "Good" scenario of the Fed delaying hikes due to weak economic data, providing an equity boost. 2) The "Bad" scenario of a "taper tantrum"-like market correction. 3) The "Ugly" scenario of the Fed intentionally popping an asset bubble by hiking rates.

1. Adios QE, Hello Rate Hike
29 April 2015
War Room

2. HiddenLevers War Room
Open Q + A
Macro Coaching
Archived webinars
CE Credit
Idea Generation
Presentation deck
Product UpdatesScenario Updates

3. Market Update
Past Fed Moves + Impact
Scenario: Hello Rate Hike
Adios QE, Hello Rate Hike

4. HiddenLevers
MARKET UPDATE

5. US/Iran détente = oxymoron
Market Update
China GDP/Markets divergence hard to crack
Resource Currencies up with Oil
sources: HiddenLevers, FT, Economist,
1
3
2

6. Market Update: Greek default nears
uncertainty in Greece increasing, not decreasing
sources: HiddenLevers, NYTimes, American Thinker, Guardian, Forbes, Telegraph UK
4
bear flag
Greek
finance
minister out
Greek PM
talking
referendum
09May
IMF loans
due
Greece
refusing
austerity

7. HiddenLevers
PAST FED MOVES + IMPACT

8. Past Fed Moves: S+P Impact
source: Business Insider, HiddenLevers
Period Months Fed Funds Change
(bps)
S&P Change
(%)
Russell 2K
Change
12/65 – 12/66 12 +165 -12.2% --
8/67 – 9/69 25 +540 -0.5% --
4/71 – 9/71 5 +185 -9.35% --
3/72 – 9/73 18 +749 -2.75% --
3/74 – 9/74 6 +304 -32.39% --
2/77 – 5/80 39 +1300 +11.44% --
8/80 – 7/81 11 +1007 +0.34% --
1/82 – 3/82 2 +241 -7.01% --
3/83 – 9/84 18 +294 +8.97% --
2/87 – 11/87 9 +133 -18.97% --
4/88 – 4/89 12 +323 +18.49% +14.28%
2/94 – 3/95 13 +300 +7.19% -.01%
4/97 – 5/97 1 +19 +10.46% +12.24%
7/99 – 7/00 12 +174 +8.23% +9.97%
6/04 – 8/06 26 + 425 +14.66% +27.09%

9. Past Fed Moves: Sector Impact
*Individual companies used when no index data exists. Sources: HiddenLevers
Period Mon
ths
Fed Funds
Change
(bps)
S&P
(%)
S&P Tech
Index
S&P Financial
Index
S&P Energy
Index
2/87 – 11/87 9 +133 -18.97% *IBM: -18.8% *JPM: -47.42% *XOM: -11.04%
4/88 – 4/89 12 +323 +18.49% *IBM: +6% *JPM: +68.11% *XOM: +1.59%
2/94 – 3/95 13 +300 +7.19% +23.7% +5.46% +8.93%
7/99 – 7/00 12 +174 +8.23% +37.34% +4.21% -.52%
6/04 – 8/06 26 + 425 +14.66% +14.24% -25.67% +121.36%
source: HiddenLevers
Rates Rising – Sector Performance
Financials underperforms (4/5)
Techs overperform (4/5)
Energy is non-correlated (5/5)

10. Past Fed Moves: Fixed Income Impact
source: Allianz
25 bps rise more significant when starting at ZERO
Money Markets – yeah right!
Inflation Protected Bonds
outperform

11. Market Update – Ebola Pandemic
sources: HiddenLevers, Forbes
Past Fed Moves: 2014 Taper
QE 1
QE
2
QE 2.5
(Twist) +
QE3
bull flag
strength quickened
post-taper
Not once did Fed alter
course of taper
Taper Tantrums: -4-5%
Yields down, not up

12. source: HiddenLevers, Fed Minutes, Wikipedia
+130 bps
-19%
Past Fed Moves: 1987 Crash
1986-87
S+P +60% in 1986-87
Oil -50% in 6 months
Boomers coming into workforce
2014-15
S+P +49% in 2013-14
Oil -50% in 6 months
Millennials coming into workforce

13. HiddenLevers
SCENARIO: HELLO RATE HIKE

14. Scenario Update
Need for Scenario Update
- Fed Rate Hike imminent
- USD rise from end of QE topping out
- Fed minding asset bubbles, not just macro
Adios QE
Hello Rate Hike
steady as she goes rate hike postponed Fed pops bubble
(now priced in) (S+P, not macro) (still on the table)

15. GOOD: Fed Delays
source: HiddenLevers, Fed Minutes
so-so econ data = Fed delays hike = equity boost
easy money
from Fed
inaction
commodities
comeback
continues
Fed unhappy
with job
growth
CPI at ZERO
below Fed
target

16. BAD: Super Tantrum
commodities
mild
downside
the correction you’ve been expecting
source: HiddenLevers, Financial Times
EM shocks
USD-based
debt
technical
supports
missing
yield curve
behaves
normally

17. UGLY: Fed Pops Bubble
rate hike
now deals
with Nasdaq
source: HiddenLevers
economic
picture
intact
safety play
10y Yields
down
October 1987 redux
SPX lows
2007 M top

18. Scenario: Hello Rate Hike
S&P
1560
-26%
S&P
1860
-12%
S&P
2250
+7%
key
lever
Yellen channels Bernanke,
keeping easy money
flowing and letting equities
float up.
Market reacts negatively to
loss off access to interest-
free money. Hard to pin
down MDD due to lack of
technical support levels.
Fed would attempt to
pierce equity bubble, while
not affecting GDP at large,
similar to 1987 rate hikes.
Good
Fed Delays
Bad
Super
Tantrum
Ugly
Fed pops
bubble

19. Hello Rate Hike: Take-Aways
Fed has used monetary policy to
pop asset bubbles before
No inflation = Fed’s hands not forced
Yellen Fed has not altered courseall rate hike cycles began with
improving macro environment
Do you hear the
words that are
comin’ out of my
mouth?
1987 1994
2015

20. Product Update
integration
RedTail
coming soon
historical
scenario
lookup