The $10+ Trillion Question The biggest thing we've learned this week (which investors should pay attention to) is what Vice Chair Lael Brainard had to say on aggressive monetary policy (specifically QT). She is largely in favour of ultra-low rates and money printing.... and was Senator Warren's pick for Powell's role. However, now Brainard has conceded we have a problem.
How Much ‘Fed’ Has the Market Priced In?From mine, your 2022 investing / trading 'equation' looks like this: more Fed equals more volatility. The world's most influential central bank confirmed it will act quicker than initially anticipated to reduce its $9 Trillion balance sheet. This is known as 'quantitative tightening' (QT) - intended to reduce the supply of money. And it's about 12+ months overdue...
Why Rates need to Rise Above Inflation LevelsWhen adjusted for inflation, interest rates are deeply negative. In fact, they are historically as low as we've ever seen. As regular readers will know, this is a large reason why risk assets have rallied so much the past couple of years; i.e., your cash is effectively trash (losing some 8% per year).
Bond Markets are Always Early… and Typically RightThe stock market is euphoric. It's rising faster than a 1999 internet stock! The bond market however does not share its new-found enthusiasm. It's starting to dust off the "recession playbook". Too early? Maybe... but it does remind me of an old Wall Street saying... "Bond markets are always early... and typically right"
Rates, Inflation and Oil to Dictate the NarrativeTune into any mainstream financial market headline - the narrative is bound to include inflation, interest rates and the price of oil. This is what's most likely to drive the price of stocks for the balance of the year...
Powell Reiterates ‘Price Stability’ Risk Fed Chairman Jay Powell has two very difficult choices. On the one hand - the Fed must do "all that it takes" to fight damaging persistent high inflation - where CPI could exceed 10% over the next few months. On the other - failure to address these risks pose a much larger threat to the economy.
Relief Rally as Powell Delivers 7 Rate Hikes for ’22Make no mistake - this was a hawkish Fed. Seven rate hikes this year is on the more aggressive side - but overdue. Powell adding the Fed are willing to move above neutral over the next two years... but stocks rallied on the news.
Markets Could see a Near-Term BounceAre we approaching a near or longer-term bottom? That's very hard to answer... but I do think we might be about to encounter a short-term bounce. That said, there are a few technical hurdles the market needs to overcome before we turn outright bullish.
What Typically Happens after Rate Rises?This post looks at how equities have reacted over the past 40 years to the initial rate rise from the Fed. In short, markets generally react positively to the first rate hikes... averaging more than 6% gains in the first 6 months.
Are We About to Experience 1970s Stagflation?Global growth is slowing as inflation hits new 40-year highs - as the Fed embark on tighter monetary policy. Are we about to experience 1970s stagflation?
