Skip to main content

Clues

Yesterday the Fed surprised the market by announcing that it would leave its policy of printing $85B per month and purchasing with this newly-minted cash a mix of MBS and UST in the open market.  What made this announcement surprising was that most economists had already forecast that the Fed would taper their printing and purchases by at least $10B/month in order to begin to reduce the world’s dependency on the Fed, and in reflection of the much-pronounced economic recovery.

Based upon the Fed’s decision, it would appear that perhaps the recovery may not be as robust as many would like to believe.  There is no other explanation for this decision.  In the meantime, the distortion in the markets for asset prices continues and the day of reckoning gets pushed out further.  More investors, who may have been holding out some dry powder to invest when markets correct and asset values reflect fundamental value, will now be induced to throw in the towel and capitulate to the Fed’s seeming desire to have everyone all in.  I heard that one very well-known hedge fund, run by some of the smarter folks out there, is now 50% cash.  There are lots of clues out there.  Seems to me that many are choosing to ignore them and play the momentum trade.  So far, this has paid off well.  Someday it won’t.  

Popular posts from this blog

Taxes and Hyperbole

There is a new tax code in the U.S., and this is indeed a “Yuuuge” deal. As far as I can tell, it is as close to an unmitigated home run for America as can be. Is it perfect? Of course, it’s not. The code retains its unwieldy size and complexity, largely as a result of compromises made in order to bribe congressmen and senators for their votes. Until we get term limits, it seems we’re stuck with a tax code that is big and complex. However, it does hit the mark on a few key issues: most every taxpayer will now pay less to the federal government (except those in states with ridiculously mismanaged economies who now will be forced to hold their state politicians more accountable); and our businesses, large and small alike, will remit less of their profits to the federal government and will be liberated to invest that savings into growth – which will surely create job and wage growth in the productive private sector.

You Need to Ask the Right Question

If you ask the wrong questions, the answers will probably also always be wrong, and even irrelevant.  This might seem obvious, but I’ve noticed that this truth is often completely overlooked, and even by the world’s most intelligent. While I’m certain this is so in every facet of life, for the purpose of this short paper I will focus on the investment/finance world.

Interest Rates & The Trade War

These are the twin bogeymen that the hysterical media will continue to lean on to drive fear into the hearts of men and women and keep them glued to their TV sets for the predictable backwards looking drivel. Here is a different perspective for you to chew on:

Interest rates cannot go up by too much. Our nation has to service more than $20T of national debt and must also maintain a massive social safety net that will increase that debt by a further 50% before Trump’s second term ends. All the rest of the analysis is unimportant.