AWARD-WINNING MONEY MANAGER/ PUBLISHER OF THE GLOBAL INVESTMENT LETTER/ PUBLIC SPEAKER
CONSENSUS OPINION EXPECTS 3 FED RATE HIKES BY THE END OF 2022 AS REFLECTED BY FUTURES MARKETS The inflationary pressures produced by COVID related supply disruptions have been greater and appear to be more persistent than at first thought. One result has been a sharp rise in expectations that the Fed will implement a series of rate increases in 2022. The prospect of rising interest rates has yet to be reflected by stock markets, but it has been felt by the Treasury market through weakening prices. The timing and number of interest rate increases remain to be seen. Much depends on the course of inflation in the next 6 months and the strength of the economy. The adoption of “just in time” inventory management practices in recent decades have magnified the impact of supply disruptions. A lessening of supply disruptions to typical levels would do much to ease inflationary pressures and reduce the probability of rate hikes. Similarly, evidence of a slowing economy over the winter would reduce the Fed’s inclination to raise rates as the fragile global economy has been dependent on interest rates at 5000-year lows to avert a serious recession. There is no easy escape from the economic corner the world has painted itself into. Interest rates must eventually return to a semblance of historic norms, but the process will be painful for economies and capital markets. Whether the process of rising rates starts in earnest in 2022 is uncertain, but it is inevitable. In our experience, stock markets can often shrug off a couple of rate increases if sentiment is sufficiently optimistic, but a third increase typically rattles markets. The interest rate issue is but one of a host of potential catalysts that will all but certainly produce extremely volatile markets in the 2020s which will produce both considerable risks and great opportunities. We believe that passive investors will be punished in the coming years while pragmatic, adaptable investors will be rewarded. If you found this post of interest, you’ll find the Global Investment Letter of value. To view free sample issues and to receive our weekly investment comment please visit: https://lnkd.in/e3BaS3P #markets #investment #interestrates #economy #capitalmarkets #investing #trading #volatility #riskmanagment
Jonathan Baird,CFA Let's assume that's correct!!! Would a Fed funds rates at .75% stop accelerating inflation running at 6.2% (reported)? According to the Taylor Rule, the Fed should be closer to 12% today, but imagine if rates were at 12%. The system would collapse. The Fed is trapped. Standard rule during a sovereign debt crisis, "If the government has debt, then you should have debt" because the government will act in it's OWN self interests and inflate away their debt. Buy real assets, avoid cash and bonds.
Executive Producer of “Money Game”- Grew Fidelity Focused Growth to over $7 Billion in assets. Solving the $340 Trillion problem.
3yJonathan Baird,CFA We are IN a financial crisis right now. Look at the German stock market from 1921-24, or the Venezuela stock market in nominal terms more recently. As governments print money, it removes the risk of stocks falling, but creates a new risk, inflation. Stocks DO NOT go down in a sovereign debt crisis in nominal terms, they go UP, the rich get RICHER and the poor struggle to make ends meets due to inflation. Until it gets extreme, and creates political turmoil. We make this point clearly in “Money Game”. What was the main cause of the rise of Hitler? Inflation. As inflation soared and stocks went UP, it caused resentment from those trying to makes ends meet. Hitler turned that resentment to racism and blamed business owners (Jews, stock owners),that were simply passing on prices to consumers, to gain power. Removing one risk (lions, stocks falling) from and ecosystem creates another risk (competing for scarce water resources, inflation).