This morning, futures are once again rallying, continuing yesterday’s panic buying/short covering higher, as market participants seem to be unsurprisingly and conveniently ignoring the problem of inflation that rests below the ongoing European geopolitical conflict.
But that was to be expected, as I noted in a recent article called “Do Look Down”. In this piece, I said that with the Fed raising rates, “the market is becoming un-rigged - at least for the time being. This time I’m saying stocks will go down not because I’m a skeptic of monetary policy – but because I’m looking at the reality of what’s going to happen when the Fed takes away the punch bowl.”
Yesterday, I wrote an article called “Nothing Has Changed, Except For Everything”, wherein I laid out my case for why I believe it truly is different this time - and why people won’t notice until the impasse the Fed is at becomes crystal clear. Until then, I’m not surprised by bear market rallies like these.
Photo: NBC News
“For the market, truth will come not just because dissenters to the system will get their opinions out there, but also because the market and the global economy, as much as government and Central Banks may not like it, are mathematical systems that play by finite cause-and-effect style quantitative rules that simply don’t allow the truth to be hidden for long,” I wrote yesterday.
Today I’m making a forum post because I’m interested in what my readers think. I want to know your opinion on where the market heads from here:
Has the last few days/week or so of bullish market action been a major shift in sentiment, or a market that just desperately needed a breather from getting pummeled? Will the trend lower continue?
Is there any chance I am wrong and inflation starts to subside on its own? What does the market and the Fed do in that case?
What is the bull case for stocks here, with rates at 0.25% and economic activity looking like it is slowing? What is the bear case?
Do you still think the Fed is going to hike rates, as planned? For example, Neel Kashakari said last week he is expecting 7 hikes this year. Will that happen if inflation doesn’t subside? If so, what will the effect be?
Is the U.S. dollar at risk of being challenged, as I have suggested here, here and here?
As a reminder for subscribers, here are some sectors/names I am still bullish on [1, 2, 3, 4, 5, 6] and some places where I am skeptical [1, 2, 3].
The only way the market goes down materially is if/when Apple, Microsoft, Google, Amazon hit a speed bump and all drop 20%+ in tandem. I'm not sure inflation is the speed bump. With stock buybacks and 401ks being maxed out with record employment there is an insane amount of buy the dip spending power available.
Global supply strains that started to ease in early 2022 are worsening again as headwinds strengthen from the war in Ukraine and China’s Covid lockdowns, threatening slower growth and faster inflation across the global economy. A rare input that’s suddenly even more scarce is neon gas used in semiconductor production. Ukraine produces 50% of the world’s purified neon. Russia’s output of raw materials extends even deeper into the global economy. Fears are now rising about food shortages. The cost of living is rising in rich and poor regions alike. Soaring energy prices are spawning street protests from Albania to the U.K. These shortages can not be controlled by higher interest rates. Supply side shortages are much more subject to geopolitical circumstances. Demand side excesses can be controlled by raising interest rates. Raising rates into supply side shortages causes recessions.
Nothing goes up or down in a straight line. We are in a bear market rally, IMO. I think we are in an approximate repeat of 2018. The Fed will raise rates until something breaks, like the stock market and/or bond market. Gold will bounce along at current levels for a while until suddenly it goes exponential.
The bear case is Q1 earnings and guidance. We all know big tech will be impacted by war in Europe and lock-downs in China. We also are lapping the stimmy quarters of 2021.
I think it is impossible for inflation to subside, how can it when they keep printing trillions? I think the bull market can come and go as the Fed and the president spin their yarns and placate the uninformed. They will raise rates as long as the market doesn't drop. The bull case for the market are those meme stock Robin Hooders that follow momentum in their little bunch of Vegas stocks but there is no way to stop the runaway inflation train and what it will do to the equity market. Also with bond yields so bad the smart money won't go there and the Jim Cramers are telling everyone to buy stocks instead, that this is getting in cheap time. Push is coming to shove with the Fed having nowhere to pick up a stick. I also feel the dollar is already being challenged, starting with Putin. No one will want our worthless IOUs at some point and there won't be a reserve currency, shit will fragment and then it will be gold's time to shine. (I had to say that)
1. I blame passive investing, blackrock, state street, etc for this. As those massive retirement assets pour in every payroll, and choices in retirement plans limited to a handful of choice and nearly all of them are tied directly to one of the indexes. Primarily, the SPX. Long only investing requires they deploy assets. What are the participants doing? Looks like they're ignoring everything and buying the dips again.
2. Nope. You're not wrong if you're asking me. But, if some magical event resets all prices back to even pre-war levels, that does not eliminate demand, and doesn't increase supply. So what does the market do? I'm more concerned what the algorithms will do. Because we have never been able to figure that out when things were in a low volatility environment. How do they act when new things happen? Who knows what holes are in the math.
3. Bull case to me is very selective, and based on overall sector performance. I don't think the case for an overall bull market is something I can grab onto just now. The Bear case, I'm still looking for valuations to come back to reality for the growth names before the trend returns to bullishness.
4. As long as inflation is raging, the pain with hikes is inevitable. If they stop hiking, inflation only keeps getting worse and then they have to take more drastic measures... maybe even emergency meetings, etc. No matter what the fed does, it's going to make a mess of everything, because it took all the rescue tools out of it's box two years ago and threw them at the pandemic. Unless the economy is actually growing, and not just coming out of some pent up demand scenario, banks won't be able to originate enough new credit worthy loans as the interest rates rise, at the exact same time the Fed is reducing their reserves. Hard to grow loan books when your cushion keeps getting sucked out of your back stop.
5. Without a question, the dollar will be and currently IS experiencing challenges from others. Nothing new here, other countries that don't like the USA shockingly don't like propping up their fiat currency by gunpoint either IMO.
My take is that we're at the top of the business cycle and everything points towards us moving further towards a slowdown over the coming quarters in the US and a recession in Europe. Based on that, I believe there will be another move down.
Inflation will subside: base effects and forward prices in commodities (crude, natural gas) are saying so, the 5y5y inflation isn't moving higher despite everything going on. But it's going to take a while. The Fed starts to hike, and while they're still hiking, inflation will come down and growth will have slowed. The market is already pricing in that they will ease in 2023 and 2024.
What's the bull case for stocks? I don't have a clear one, just that the business cycle has become incredibly fast: the bear market in March 2020 lasted a couple of weeks, the recession only a few months, the entire cycle less than two years. It could be that everything is/has been playing out so fast that we're basically already back in a pseudo-reflation scenario. To be clear, I don't see that, though: sectors aren't performing the way they would, breadth is weak, etc.. I just know that this stuff can go on longer than my shorts would last.
The dollar is not being challenged. China does not want to he a reserve currency, and no one would believe them anyway. Their judicial system is weak, their capital market is closed, and if they opened it up, the Yuan would devalue immediately. It's a long road to anyone taking over the reserve currency.
King Dollar is on life support, due to our abuse of the “exorbitant privilege”. Dedollarization among the BRICs and OPEC will move faster than people think, due to (a) foreign countries seeing the example of both Russia as a country and Russian individuals being cut off from SWIFT and realizing that holding Treasuries and a large portion of foreign reserves in dollars is not actually risk free, (b) Saudi moves to price some oil in yuan and moves like Russia demanding payment for natgas in rubles, and (c) hyperinflation reducing the attractiveness of the dollar as a currency peg. It will be a rough ride domestically, although in the long run as a minor bright spot perhaps it will help bring the US economy back into some kind of trade balance as a weak dollar would benefit US exporters.
Inflation is going to continue and da Boyz in da Fed can't do squat (picture a tsunami wave pushing towards shore, and Powell is the helpless dweeb playing in the sand).
The ROC of inflation will moderate, especially if peace breaks out. Further, in place recessionary pressures will certainly contribute to an inflation moderation. The Fed will raise rates, but like the NFL, not for long.
Not sure how this impacts everything and don’t know how to prove this, but still loads of cash on sidelines for those 40+ and living longer. Job market appears to be healthy and if you get raises and have a matched 401k even more cash coming into equities. If no inventory to put into residential real estate where else are common retail investors going with their cash to get yield?
Dear fellow GOLD BUGS…Despite: raging inflation (and still low interest rates), a pandemic, a war in Europe..gold still failed to rally above its 2020 high. In fact, at the moment of writing these words, gold is trading at $1,903 just slightly above its 2011 high. Despite all these factors that should have made gold exceed the old highs it hasn’t. WHY? I SUSPECT DESPITE ALL THE STARS BEING ALIGNED, GOLD IS STILL CORRECTING. 6-12 INTEREST HIKES WILL SEND GOLD DOWN FURTHER. I EXPECT GOLD TO SETTLE BETWEEN $1,350-$1,500. THEN…GOLD GOES TO THE MOON. Meanwhile I have a large position in JDST because junior miners will get spanked and when the general market declines again…it will exacerbate the pain.
Like all markets, it will move in the direction in which the biggest players are betting. If you want to make some serious scratch, get on their side of the trade. If you are looking for how to do it, I’ve posted one way here…
Chris, what choices do conservative investors/savers have to stick their money in besides stocks. Many keep telling me physical PMs but that also entails risk. It used to be that when you were near retirement you could rotate to bonds. Good luck with that strategy today. So, stocks it is. Stick to dividend paying equities if you’re on a fixed income; ride out the volatility.
1. I don’t think so. My question - the forces that drove the market lower (inflation, rates, Fed, war, Biden, consumer sentiment) are still in place…what has changed?
2. I’ve always believed we are Japan 2.0 and will be in a deflationary spiral, but given recent Biden/Dem policy pushes (vaxx mandates, going green, woke, Russia, etc.) and with a hawkish Fed that is so far behind the curve, I think “beating” inflation may be tough. Given the fascist turn of the Dem party and their covid-cult obsession, had the vaxx mandates went through, we would be seeing double-digit inflation right now.
3. Bull case - US Markets are the only game in town
Bear case - rising costs, rising rates, liquidity crunch, extreme valuations given economic/social backdrop
4. Yes, but if market drops 20-30%, they will pause/stop. The Fed third mandate is positive market returns.
5. Maybe - but does money really want to go to a yuan/ruble/euro/yen?? Are those better currencies? I believe the only way the US loses reserve currency status is if the US loses WWIII. The US will never give up its reserve currency status…and yes, we will go to war over it.
"Its China, stupid." Not the economy. Something very nasty is coming this way from Beijing, either a devaluation or a collapse of the property market (already well underway). Bond repayments being missed repeatedly and so forth. This will be the catalyst, the Lehmann moment. No idea when but if China falls we all fall. At the very least we pay much more for our consumables. And, if a replacement for Swift can be in place soon, then the dollar's reign is toast and that will exacerbate the sentiment. Its always sentiment that rules which, right now, is again at the level of excitable teenagers having their first party. Oliver
1. Market is sleep walking the last few weeks due to a lack of bad data. The market no longer looks forward. Without bad news, the market will go up.
2. Very low chance you are wrong (5%?) about inflation not subsiding. Wage, food and oil prices are fueling it, but demographics will keep it going. The Ukraine invasion also gave it a shot in the arm but it will continue even after the war is over. The Fed is WAY behind the curve on tightening and raising interest rates.
What does the Fed do if inflation subsides? Get on their knees and thank God.
3. As long as the news stay halfway decent, stocks will go up. Once the impact of inflation takes its toll on Real Disposable Income and people realize that stocks aren't the panacea investment they thought, there will be a major shift to value as there won't be any growth.
4. The Fed has to hike to save face. 5-7 hikes won't even come close to totally taming inflation, but it will cause a recession due to decreased borrowing.
5. Of course the dollar is at risk but it's still the best game in town for years to come if the Fed doesn't mess it up.
It's different this time. We have armies and armies of retail traders/investors ready and willing to keep buying any dip. These people weren't in the markets in '02 and '08. Historical trends don't necessarily hold when you have a new dynamic in play.
On #5, the Saudis have no reason not to sell oil in other currencies. The whole calculus was that the U.S. would defend the house of Saud from their regional rivals (mainly Iran). Biden won't or can't execute on that guarantee. Russia has obvious reasons not to sell its commodities in $$$. The Saudis no longer have a reason to continue doing so.
The only problem here is asking what replaces the $$$. The Yuan cannot for the simple reason that the Chinese economy is too opaque. There is not real distinction between public and private sectors in China.
My best guess is that the initial selloff in stocks a couple of months ago was investors pricing in the Fed's rate hikes and end of this cycle of QE. However, similar to the bond market, stocks are now seeing past this current tightening cycle and are beginning to price in the next round of QE when/if Fed policy causes a recession. I am skeptical that the Fed can raise rates more than 150 basis points and certainly do not believe they will reduce the size of the balance sheet, and I'm sure the AMC and GME holders are sensing that too. It's possible stocks do not actually fall in nominal terms, but instead in real terms. Also, perhaps somewhat contrarian, but I like 1-3 year treasuries (SHY) at its current levels due to possible mispricing of how many hikes the Fed will actually implement.
Big assumption it dies down. With ‘Ole Joe determined to say the wrong thing who knows. Also, what is signalled in the media is what they want us to think - and my base case is that we are being played….
First is a conventional war viewpoint, for which there are various historical outcomes one can interpret from.
Second is A PIVOT.
Not sure what it is, could it be the Gas ~ Ruble ~ Gold and its impact on US$ and global trade?
Could it be staging for something bigger to come?
Nada?
Meanwhile the Fed appears to have morphed into Tyler Durden in Fight Club – printing money that causes inflation vs raising rates to fight inflation.
I sense the financial industry and all its cheerleaders will go with full denial into tougher times ahead, because they are the ones making BIG $$$ from all the BS they created.
2. Inflation is "money printing" but CPI is a measure of supply and demand. With the economy relying on cheap money, I don't believe real rates have to go positive to slow inflation. The demand side would get crushed in a recession catalyzed by interest rate hikes, and it doesn't look like we will have to go very far before that happens. Unless the fed wants to continue this circle, where they inject stimulus money back into the economy due to the recession, causing more inflation.....you know how that goes. However, if the dollar is challenged and falls on the dxy amidst a slowing economy, stagflation looks very likely. It looks like this might be the play. Additionally, housing prices look like they will slow. With OER being a big piece of CPI, CPI prints could fall some, causing the average Joe to worry less about inflation, allowing the fed to stop hiking rates because it is no longer a political nightmare. Lots to play out here. Rapid changes everyday.
I think we are now where Peter Schiff said that we were a decade ago.
The only way the market goes down materially is if/when Apple, Microsoft, Google, Amazon hit a speed bump and all drop 20%+ in tandem. I'm not sure inflation is the speed bump. With stock buybacks and 401ks being maxed out with record employment there is an insane amount of buy the dip spending power available.
Global supply strains that started to ease in early 2022 are worsening again as headwinds strengthen from the war in Ukraine and China’s Covid lockdowns, threatening slower growth and faster inflation across the global economy. A rare input that’s suddenly even more scarce is neon gas used in semiconductor production. Ukraine produces 50% of the world’s purified neon. Russia’s output of raw materials extends even deeper into the global economy. Fears are now rising about food shortages. The cost of living is rising in rich and poor regions alike. Soaring energy prices are spawning street protests from Albania to the U.K. These shortages can not be controlled by higher interest rates. Supply side shortages are much more subject to geopolitical circumstances. Demand side excesses can be controlled by raising interest rates. Raising rates into supply side shortages causes recessions.
Nothing goes up or down in a straight line. We are in a bear market rally, IMO. I think we are in an approximate repeat of 2018. The Fed will raise rates until something breaks, like the stock market and/or bond market. Gold will bounce along at current levels for a while until suddenly it goes exponential.
2. Is there any chance I am wrong and inflation starts to subside on its own? What does the market and the Fed do in that case?
Yes, there is. I don't know the exact number, but the government seems to have printed ~30% of GDP of dollars.
A one-off increase in prices of ~30% will end inflation as long as there is no more printing afterwards. Hence inflation can "subside".
Obviously, this assumes that deficits start to be rolled with debt, not more money printing...
The bear case is Q1 earnings and guidance. We all know big tech will be impacted by war in Europe and lock-downs in China. We also are lapping the stimmy quarters of 2021.
I think it is impossible for inflation to subside, how can it when they keep printing trillions? I think the bull market can come and go as the Fed and the president spin their yarns and placate the uninformed. They will raise rates as long as the market doesn't drop. The bull case for the market are those meme stock Robin Hooders that follow momentum in their little bunch of Vegas stocks but there is no way to stop the runaway inflation train and what it will do to the equity market. Also with bond yields so bad the smart money won't go there and the Jim Cramers are telling everyone to buy stocks instead, that this is getting in cheap time. Push is coming to shove with the Fed having nowhere to pick up a stick. I also feel the dollar is already being challenged, starting with Putin. No one will want our worthless IOUs at some point and there won't be a reserve currency, shit will fragment and then it will be gold's time to shine. (I had to say that)
1. I blame passive investing, blackrock, state street, etc for this. As those massive retirement assets pour in every payroll, and choices in retirement plans limited to a handful of choice and nearly all of them are tied directly to one of the indexes. Primarily, the SPX. Long only investing requires they deploy assets. What are the participants doing? Looks like they're ignoring everything and buying the dips again.
2. Nope. You're not wrong if you're asking me. But, if some magical event resets all prices back to even pre-war levels, that does not eliminate demand, and doesn't increase supply. So what does the market do? I'm more concerned what the algorithms will do. Because we have never been able to figure that out when things were in a low volatility environment. How do they act when new things happen? Who knows what holes are in the math.
3. Bull case to me is very selective, and based on overall sector performance. I don't think the case for an overall bull market is something I can grab onto just now. The Bear case, I'm still looking for valuations to come back to reality for the growth names before the trend returns to bullishness.
4. As long as inflation is raging, the pain with hikes is inevitable. If they stop hiking, inflation only keeps getting worse and then they have to take more drastic measures... maybe even emergency meetings, etc. No matter what the fed does, it's going to make a mess of everything, because it took all the rescue tools out of it's box two years ago and threw them at the pandemic. Unless the economy is actually growing, and not just coming out of some pent up demand scenario, banks won't be able to originate enough new credit worthy loans as the interest rates rise, at the exact same time the Fed is reducing their reserves. Hard to grow loan books when your cushion keeps getting sucked out of your back stop.
5. Without a question, the dollar will be and currently IS experiencing challenges from others. Nothing new here, other countries that don't like the USA shockingly don't like propping up their fiat currency by gunpoint either IMO.
My take is that we're at the top of the business cycle and everything points towards us moving further towards a slowdown over the coming quarters in the US and a recession in Europe. Based on that, I believe there will be another move down.
Inflation will subside: base effects and forward prices in commodities (crude, natural gas) are saying so, the 5y5y inflation isn't moving higher despite everything going on. But it's going to take a while. The Fed starts to hike, and while they're still hiking, inflation will come down and growth will have slowed. The market is already pricing in that they will ease in 2023 and 2024.
What's the bull case for stocks? I don't have a clear one, just that the business cycle has become incredibly fast: the bear market in March 2020 lasted a couple of weeks, the recession only a few months, the entire cycle less than two years. It could be that everything is/has been playing out so fast that we're basically already back in a pseudo-reflation scenario. To be clear, I don't see that, though: sectors aren't performing the way they would, breadth is weak, etc.. I just know that this stuff can go on longer than my shorts would last.
The dollar is not being challenged. China does not want to he a reserve currency, and no one would believe them anyway. Their judicial system is weak, their capital market is closed, and if they opened it up, the Yuan would devalue immediately. It's a long road to anyone taking over the reserve currency.
King Dollar is on life support, due to our abuse of the “exorbitant privilege”. Dedollarization among the BRICs and OPEC will move faster than people think, due to (a) foreign countries seeing the example of both Russia as a country and Russian individuals being cut off from SWIFT and realizing that holding Treasuries and a large portion of foreign reserves in dollars is not actually risk free, (b) Saudi moves to price some oil in yuan and moves like Russia demanding payment for natgas in rubles, and (c) hyperinflation reducing the attractiveness of the dollar as a currency peg. It will be a rough ride domestically, although in the long run as a minor bright spot perhaps it will help bring the US economy back into some kind of trade balance as a weak dollar would benefit US exporters.
Inflation is going to continue and da Boyz in da Fed can't do squat (picture a tsunami wave pushing towards shore, and Powell is the helpless dweeb playing in the sand).
The ROC of inflation will moderate, especially if peace breaks out. Further, in place recessionary pressures will certainly contribute to an inflation moderation. The Fed will raise rates, but like the NFL, not for long.
Not sure how this impacts everything and don’t know how to prove this, but still loads of cash on sidelines for those 40+ and living longer. Job market appears to be healthy and if you get raises and have a matched 401k even more cash coming into equities. If no inventory to put into residential real estate where else are common retail investors going with their cash to get yield?
Dear fellow GOLD BUGS…Despite: raging inflation (and still low interest rates), a pandemic, a war in Europe..gold still failed to rally above its 2020 high. In fact, at the moment of writing these words, gold is trading at $1,903 just slightly above its 2011 high. Despite all these factors that should have made gold exceed the old highs it hasn’t. WHY? I SUSPECT DESPITE ALL THE STARS BEING ALIGNED, GOLD IS STILL CORRECTING. 6-12 INTEREST HIKES WILL SEND GOLD DOWN FURTHER. I EXPECT GOLD TO SETTLE BETWEEN $1,350-$1,500. THEN…GOLD GOES TO THE MOON. Meanwhile I have a large position in JDST because junior miners will get spanked and when the general market declines again…it will exacerbate the pain.
Like all markets, it will move in the direction in which the biggest players are betting. If you want to make some serious scratch, get on their side of the trade. If you are looking for how to do it, I’ve posted one way here…
https://bagholder.substack.com/p/learn-from-the-titans?s=w
Chris, what choices do conservative investors/savers have to stick their money in besides stocks. Many keep telling me physical PMs but that also entails risk. It used to be that when you were near retirement you could rotate to bonds. Good luck with that strategy today. So, stocks it is. Stick to dividend paying equities if you’re on a fixed income; ride out the volatility.
1. I don’t think so. My question - the forces that drove the market lower (inflation, rates, Fed, war, Biden, consumer sentiment) are still in place…what has changed?
2. I’ve always believed we are Japan 2.0 and will be in a deflationary spiral, but given recent Biden/Dem policy pushes (vaxx mandates, going green, woke, Russia, etc.) and with a hawkish Fed that is so far behind the curve, I think “beating” inflation may be tough. Given the fascist turn of the Dem party and their covid-cult obsession, had the vaxx mandates went through, we would be seeing double-digit inflation right now.
3. Bull case - US Markets are the only game in town
Bear case - rising costs, rising rates, liquidity crunch, extreme valuations given economic/social backdrop
4. Yes, but if market drops 20-30%, they will pause/stop. The Fed third mandate is positive market returns.
5. Maybe - but does money really want to go to a yuan/ruble/euro/yen?? Are those better currencies? I believe the only way the US loses reserve currency status is if the US loses WWIII. The US will never give up its reserve currency status…and yes, we will go to war over it.
"Its China, stupid." Not the economy. Something very nasty is coming this way from Beijing, either a devaluation or a collapse of the property market (already well underway). Bond repayments being missed repeatedly and so forth. This will be the catalyst, the Lehmann moment. No idea when but if China falls we all fall. At the very least we pay much more for our consumables. And, if a replacement for Swift can be in place soon, then the dollar's reign is toast and that will exacerbate the sentiment. Its always sentiment that rules which, right now, is again at the level of excitable teenagers having their first party. Oliver
1. Market is sleep walking the last few weeks due to a lack of bad data. The market no longer looks forward. Without bad news, the market will go up.
2. Very low chance you are wrong (5%?) about inflation not subsiding. Wage, food and oil prices are fueling it, but demographics will keep it going. The Ukraine invasion also gave it a shot in the arm but it will continue even after the war is over. The Fed is WAY behind the curve on tightening and raising interest rates.
What does the Fed do if inflation subsides? Get on their knees and thank God.
3. As long as the news stay halfway decent, stocks will go up. Once the impact of inflation takes its toll on Real Disposable Income and people realize that stocks aren't the panacea investment they thought, there will be a major shift to value as there won't be any growth.
4. The Fed has to hike to save face. 5-7 hikes won't even come close to totally taming inflation, but it will cause a recession due to decreased borrowing.
5. Of course the dollar is at risk but it's still the best game in town for years to come if the Fed doesn't mess it up.
It's different this time. We have armies and armies of retail traders/investors ready and willing to keep buying any dip. These people weren't in the markets in '02 and '08. Historical trends don't necessarily hold when you have a new dynamic in play.
On #5, the Saudis have no reason not to sell oil in other currencies. The whole calculus was that the U.S. would defend the house of Saud from their regional rivals (mainly Iran). Biden won't or can't execute on that guarantee. Russia has obvious reasons not to sell its commodities in $$$. The Saudis no longer have a reason to continue doing so.
The only problem here is asking what replaces the $$$. The Yuan cannot for the simple reason that the Chinese economy is too opaque. There is not real distinction between public and private sectors in China.
My best guess is that the initial selloff in stocks a couple of months ago was investors pricing in the Fed's rate hikes and end of this cycle of QE. However, similar to the bond market, stocks are now seeing past this current tightening cycle and are beginning to price in the next round of QE when/if Fed policy causes a recession. I am skeptical that the Fed can raise rates more than 150 basis points and certainly do not believe they will reduce the size of the balance sheet, and I'm sure the AMC and GME holders are sensing that too. It's possible stocks do not actually fall in nominal terms, but instead in real terms. Also, perhaps somewhat contrarian, but I like 1-3 year treasuries (SHY) at its current levels due to possible mispricing of how many hikes the Fed will actually implement.
Big assumption it dies down. With ‘Ole Joe determined to say the wrong thing who knows. Also, what is signalled in the media is what they want us to think - and my base case is that we are being played….
Ukraine can perhaps be broken into 2 outcomes.
First is a conventional war viewpoint, for which there are various historical outcomes one can interpret from.
Second is A PIVOT.
Not sure what it is, could it be the Gas ~ Ruble ~ Gold and its impact on US$ and global trade?
Could it be staging for something bigger to come?
Nada?
Meanwhile the Fed appears to have morphed into Tyler Durden in Fight Club – printing money that causes inflation vs raising rates to fight inflation.
I sense the financial industry and all its cheerleaders will go with full denial into tougher times ahead, because they are the ones making BIG $$$ from all the BS they created.
2. Inflation is "money printing" but CPI is a measure of supply and demand. With the economy relying on cheap money, I don't believe real rates have to go positive to slow inflation. The demand side would get crushed in a recession catalyzed by interest rate hikes, and it doesn't look like we will have to go very far before that happens. Unless the fed wants to continue this circle, where they inject stimulus money back into the economy due to the recession, causing more inflation.....you know how that goes. However, if the dollar is challenged and falls on the dxy amidst a slowing economy, stagflation looks very likely. It looks like this might be the play. Additionally, housing prices look like they will slow. With OER being a big piece of CPI, CPI prints could fall some, causing the average Joe to worry less about inflation, allowing the fed to stop hiking rates because it is no longer a political nightmare. Lots to play out here. Rapid changes everyday.
There needs to be a “Lehman” trigger somewhere; otherwise, happy days are here again.