From nuance to nuance
The Fed slightly shifted its nuanced view on interest rates this week. And investors said ‘sell’. And markets fell.
Of course, another thing going on: China is curbing commodity speculation. But the Pandemic-inspired monetary moves, now sort of played out, as the Pandemic has subsided in the US, are the table-setter for what’s next, as they are due to expire.
The situation is a bit strange. Write Barron’s Randal Forsythe:
The Fed’s easy monetary policies, which were put in place in March 2020, during the worst of the economic and financial chaos brought by the pandemic, will have an eventual expiration date. With the U.S. economy growing strongly and inflation running at multiyear highs, the time for these emergency policies would seem to be running out. Yet the admission of this seemingly self-evident fact took markets by surprise.
I have to feel that some investors felt their summer would be more comfortable pared of some holdings, as sentiment waffles between hurray the pandemic in the US is over and hey whats going to happen next.
"We have to be humble about our ability to understand the data." - Jerome Powell.
I don’t think the Fed’s comments were that key. It is just that sell sentiment was there to be ignited.
I don’t know what will happen next but I don’t think it will be evenly distributed.
What I think is that things will not change too much in terms of interest rates or inflation. The dollar will remain largely unchanged, but somewhat weaker. The dollar, interest rates, and inflation will look like they are threatening from time to time across a whack-a mole landscape. I imagine a risk-off stock rotation. I think industrials – tho costly – will grow. I think the same of commodities, tho China moves must be closely watched. High tech to be understood would be better divided into technology services/products, business services, entertainment/gaming, online commerce, advertising, and devices. Faang as a token for ‘growth’ (and high multiples) is over. Cryptocurrency will not take hold until governments get behind it, to the pirates' and libertarians' chagrin.
How would that playout in a portfolio with a bias toward income and modest risk appetite?
(Note: What I cannot even pretend to guess at is what is the future of Value – but continue to watch Buffet (and read Lynch) closely.)
Bond yield is not strong. Equities race could very well be run. The trouble with alternative assets, as WSJ’s Jason Zweig writes: Only the earliest and most skillful (or luckiest) can get the best returns.
Zweig puts the investor conundrum like so:
1.You can add a bunch of new and exotic bets and hope they don’t blow up on you.
2. You can raise your existing holdings of traditional risky assets like stocks, even though no one thinks they’re cheap.
3.Or you can grit your teeth and stay the course, through a period of what may be lackluster returns, until interest rates finally normalize.
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Volatile summer vacation - Barrons
Shifting gears here at Epitomeme – that is, we are going to reduce our coverage of Barons, in favor of another outlet. This is not to say there is anything wrong with Barons. It’s just we feel we can guess what the analysis will be there. It is good to use such a trustworthy source; it is also good to get a variety of opinions. I count Barrons' Randall Forsythe as reliable source of advice and predictivity. -- B.B.
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