Powell seems to think, that it is possible and even easy to fix something, that gets broken by overtightening. You just back off a bit and print some more money.
Any engineer knows, that overtightening very often causes irreparable structural damage. That’s what’s going to happen in the financial system, maybe quite soon.
New "P" word is "Prolongation" of higher rates, very necessary as it will take at least 2 years to regain control of inflation, if Fed loosens prematurely which is the greater mistake the Fed can do, then we will have more pain to come for more years. The sooner, the better
As Powell said: "The end point of rate increases will be higher than previously expected and that the greater mistake would be lack of tightening or premature loosening"
Would love to ger your (and others here) take on what will happen with inflation in the mid to longer term. Will we be going back to the 2-2.5% area in 3-5 years? Or are we in a regime change and we should expect it to be higher during this decade? Will Mr powell succeed in his quest of slaying the inflation dragon?
Really cool information again, thanks for this excellent free service. Does the macro compass have it's own website somewhere? Substack is a little buggy it seems, the login part, the newsletter by itself works just fine.
Regarding the long VIX in the Quadrant 4. VIX keeps going down even when SPX goes down. This means that the dealers agree to sell OTM puts at lower and lower prices. This also means that the hedgers and speculators are not keen on buying the downside protection even though smart analysts like and and well-known strategists in the banks are mostly saying that the big low is still ahead. I've been trying to reconcile it for a while but I can't. Any thoughts?
Hi Alf! Unless the big announcement on the 10th has anything to do with this... ;-)
Could you please let me know without taking much of your time what would be the Short-Term Treasuries yielding 4%+ returns that you spoke about? I've been mostly in cash all year (and part of 2021) and I'm getting anxious seeing it devalue unnecessarily.
As I reconciled my latest Fidelity statement, I couldn’t help but notice that dividends from my 2 money market accounts (SPAXX and FDRXX) easily beat what I received from BSV, roughly matched what I received from AGG, and were marginally less that what I received from BLV and TLT.
For the past couple of months, I have been generating losses by tax harvesting out of BSV and into the money market funds, while at the same time gently levering into AGG, BLV, and TLT. I feel like the risk/reward from this play will be better over the next year or so than sticking with much at all in BSV.
The vastly improving money market rates are giving investors a lot of optionality to stash a lot of cash and then watch for opportunities.
This was a good read thank you!
Do you think TLT is near bottom? FED has not pivoted yet.
I’m waiting to go long TLT, great article, you are a national treasure sir 🫡
Wonderful as ever Alf, we readers are lucky to have you!
Pretty much any asset is a risk asset now
Powell seems to think, that it is possible and even easy to fix something, that gets broken by overtightening. You just back off a bit and print some more money.
Any engineer knows, that overtightening very often causes irreparable structural damage. That’s what’s going to happen in the financial system, maybe quite soon.
New "P" word is "Prolongation" of higher rates, very necessary as it will take at least 2 years to regain control of inflation, if Fed loosens prematurely which is the greater mistake the Fed can do, then we will have more pain to come for more years. The sooner, the better
As Powell said: "The end point of rate increases will be higher than previously expected and that the greater mistake would be lack of tightening or premature loosening"
Would love to ger your (and others here) take on what will happen with inflation in the mid to longer term. Will we be going back to the 2-2.5% area in 3-5 years? Or are we in a regime change and we should expect it to be higher during this decade? Will Mr powell succeed in his quest of slaying the inflation dragon?
Really cool information again, thanks for this excellent free service. Does the macro compass have it's own website somewhere? Substack is a little buggy it seems, the login part, the newsletter by itself works just fine.
Regarding the long VIX in the Quadrant 4. VIX keeps going down even when SPX goes down. This means that the dealers agree to sell OTM puts at lower and lower prices. This also means that the hedgers and speculators are not keen on buying the downside protection even though smart analysts like and and well-known strategists in the banks are mostly saying that the big low is still ahead. I've been trying to reconcile it for a while but I can't. Any thoughts?
Alf, didn't Powell state he wants to see real rates adjusted for core PCE?
Hi Alf! Unless the big announcement on the 10th has anything to do with this... ;-)
Could you please let me know without taking much of your time what would be the Short-Term Treasuries yielding 4%+ returns that you spoke about? I've been mostly in cash all year (and part of 2021) and I'm getting anxious seeing it devalue unnecessarily.
Many thanks!
M.
Great stuff as always Alf. Many thanks!!
Do you think $HYG (High Yield bonds) will bottom along when equities capitulate or will it align more to the bond capitulation ($TLT) ?
High yield tend to follow the path of equities.. but we keep getting surprises.
Thank you Alf... Well done and informative!
As I reconciled my latest Fidelity statement, I couldn’t help but notice that dividends from my 2 money market accounts (SPAXX and FDRXX) easily beat what I received from BSV, roughly matched what I received from AGG, and were marginally less that what I received from BLV and TLT.
For the past couple of months, I have been generating losses by tax harvesting out of BSV and into the money market funds, while at the same time gently levering into AGG, BLV, and TLT. I feel like the risk/reward from this play will be better over the next year or so than sticking with much at all in BSV.
The vastly improving money market rates are giving investors a lot of optionality to stash a lot of cash and then watch for opportunities.
Thanks Alf. Insightful as always.
Hi Alf,
Thank you very much - Great article as always !
Can you put some light on the best way to play those short-term Treasuries or highly regulated MMFs ?... for a small account obviously
Many thanks.
Best,
Denis