What is going to happen next?
Generous Jay Powell Asleep At The Wheel Now Panics
The current situation reminds of a train wreck. The engineer is drunk and falls asleep at the wheel. A sharp curve is coming up. The engineer wakes up but it is too late. He panics and slams on the brakes. But the train wrecks anyway. Welcome to Fed policy and the US economy. The Fed pumped trillions of dollars into the economy waaaay past the time when it was necessary and is totally stunned to find out that inflation resulted. Oh wait, they have wanted 2% inflation. They were targeting that level of inflation as if any inflation is good for the economy. Well, they got their wish. Inflation got to 2%! Good job, Fed! You are masters of the economy! You can precisely manage the economy! Good job! But now what? | |
The market is now looking for a 90 bps. Hike at their next meeting. What this really means is that most people are looking for 100 bps and a few are looking for 75. So that blends out to 90. This would be the most aggressive rate hike since Paul Volcker in the 1980's! The Fed is playing catchup to their previous policy mistake and now creating a new policy mistake. In effect, the Fed is actually compounding their original policy mistake. In addition, they believe that the only way to cure inflation is to crush the economy. They simply do not understand that too much money chasing too few goods is the reason why inflation exists in the first place. And so, the fact that they were pumping too much money doesn't enter into their consciousness at all. Instead, they want to blame others for their mistakes. So now, they tell us that supply shortages and the war in the Ukraine are the cause of the inflation, even though inflation was already rapidly moving higher before any of those things occurred. So how do we make money? | |
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The most important way to make money is to take a look at the bubbles caused by the Fed and short them. So that includes: There are a lot of potential short candidates there. I think there is still a lot of money on the short side because this recession has yet to really start. The Fed will react to the coming recession by dropping interest rates rapidly and all of the bubbles will be pumped up again. And we will shift to the long side. But, for now, the short side is the place to be. | |
Words To Live By "He was a true speculator, a thinker with the vision of a dreamer and the courage of a fighting man—an unusually well-informed man, who knew both the theory and the practice of trading in cotton." Remanence's of a Stock Operator Courtney Comment: This book is one of my most favorite books of all time. So much knowledge and insights into trading. This passage details my character goals of being a trader! | |
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