Problem is the Fed always lags the market. Like last drop of 2021/2, Daq lost 42% of its total drop before the Fed made their first rate hike move March 17. The rate hike was small 25 BPS. The DAQ rallied 5% after?! After DAQ bottomed later in the year but this quick move up is now only 12% away higher to get to where DAQ was on March 17 when they made the first move. Investors missed the bottom and top by a lot following the Fed “the lag”. Now the Fed continues to raise rates and folks are waiting for the “all clear” signal from the Fed while sitting in their 4%ish whatever annual yields calling the market names. I don’t know how one could have hedged or gone long with all this if you followed the Fed moves?? If so share the methods.
I am not trying to argue with anyone. The “Fed guides the market” is one thing we hear all the time, but I can’t come up with times where one can really benefit from there moves. It’s alot of lag.
About the Fed though, Here is a big question - remember last year when we had inflation already going and rate hikes started folks constantly mentioned “Volcker”!! and how horrible he was because of what he has to do? Now he never gets mentioned. Why?? Pounding the table on this - look what happened after! It will give better answers on what the Feds actions now can do for the economy in the future.
The most important thing the Fed can guide folks with right now is looking at Fed in the 1980’s when we had inflation. See what happened “after” Volcker “killed the economy” with “higher rates”. He did sure. But for how long? He later provided us with higher govt Interest payouts and let’s add how monetary helped us with cola’s from inflation added fuel the money supply along with higher Govt spending while taxes were lowered.
Let’s look at today - We already now have 1. Higher govt spending (much) 2. Low taxes are covered 3. Now we have higher interest rate payouts and cola ‘s (just starting) which I said were coming. We haven’t had any in years so this is semi new. And now 4. much higher debt and money supply than the 80’s which will get way more Interest payouts into the economy.
The yields now are less then the 80’s yes, but the amount of debt and money supply collecting interest are waaaaaaaaaaaaaay higher then the 1980’s. Also add today govt spending has been on full throttle last 15 years and in the 80’s it was just starting. The companies today keep making great, innovative products and in the 80’s just starting.
Let’s throw in 2000 for fun. What the difference between todays tech companies and say 2000’s? Hmmmmm. Think about it. This was a tech wreck but todays companies actually have useful products compared to 2000. Both times 2000, 2021 they were overvalued and deserved to be sold off. Difference is 2021 companies are better set up to recover.
We got/getting the Fed “lag” right now. Higher rates from here on out don’t work anymore and just add to the money supply with higher interest payments. Maybe they know this and won’t tell you? I am reading between the lines.
But flip side - Maybe this won’t be the 1980’s bull and we will fall flat and fail? My vote is no. But if we do fail at least plenty of money will be sloshing around while the unemployment is low, RE market is still alright, inflation steadily dropping, world reopens, no one cares about Covid anymore and we have a bunch of cool innovative products to use while we wait for things to turn. This is what folks are saying right now - hmmm it doesn’t feel like a recession is coming??? Yet they are bearish with the markets.
It’s not a matter of “if” it’s “when” we roll. I think the train has left the station already, but don’t worry it didn’t run away too far.
Hope this made folks think.
Switching topics “let’s look at where we are now” fiscal money added from the Treasury to money supply is slowing down Feb 15ish after the $56B added in Jan and $82B so far in Feb “tailwinds”. That does not mean we drop immediately or it’s a big drop, but if we shallow drop it will be between Feb 15 - April 15. If we get a bigger dip it will be Summer, but we should be higher then anyway. Then in Fall we get ready to launch to ATH’s. This year will continue to shock. Folks forgot how to be positive, but when they finally remember…..
AAII survey has been bearish 63 weeks in a row. What if this flips to 63 weeks the other way?
https://www.aaii.com/sentimentsurvey/sent_results
If we cap or hold back debt ceiling all the above is game over. More on that later and when we will have to look at it again when we get pounded on the topic by the Media coming up. I just recommend “you will have to remove your deeply entrenched views and biases about national debt, govt spending, who gets the money, taxes, who decides where it goes etc” to get a more clear view on how money works. That’s hard to do.
I think the experts will keep being wrong. Things are lining up for the economy to really roll in the years ahead. Folks just can’t wrap their heads around it. But they don’t look at what happened “after” Volcker killed the economy.
Hang in there folks.