Normally, three strikes and you are out. But not the Federal Reserve who sets the price of everything via interest rates.
1) They delayed raising rates and delayed stopping the printing press. We got inflation.
2) They did not raise rates high or fast enough. They did not tighten monetary policy.
3) They pivoted to lowering rates when inflation was still too high and the economy was strong… booming actually. Okay, fine they are trying to save the banks again. But they gave us a jumbo cut upfront.
Guess what?
The market rates are going up, not down. The market does not trust the Fed to keep inflation down and the supply of Treasuries coming down the pike due to high deficits from too low taxes on the filthy rich will force one of two outcomes.
- Let Capitalism work and let the market decide interest rates. Ha, Ha, no way.
- Print money to suppress longer duration interest rates again.
I say watch gold to see what the world thinks. Realize the US lost the ability to control gold prices via the paper market recently. It also helps that Basil III finally makes gold a Tier 1 reserve (as it should have been) so all the rest of the world’s central banks will load up on gold trading in US Treasuries.
Realize that gold has outperformed the SP500 over the last year. When the US government starts printing again to pay the bills or simply the market sniffing this out, it will set gold on fire.
My advice has been focused on the TSP funds. But I talk macro. And so I can not help but bring this up.
What else? Credit spreads say monetary policy is super easy. No fear. This is normally bullish for the stock market. I think the market is on drugs. The SP500 is double its average valuation in terms of revenue to price. The hangover will be immense.
It’s just hard to know when the market will pass out.
But it will.
Categories: Perspectives