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     Entrepreneur Kurra Bewarse Username: Entrepreneur Post Number: 3919 Registered: 05-2011 Posted From: 179.48.248.30 Rating: N/A |
Krishna Memani Where is Robert Burgess when you need him? Robert, to his credit, has created a meme in Bloomberg news, the primary source for my financial news (WSJ, eat your heart out) about numbers that matter. If I were him, I would say the most important number of the week is 7%, or whatever. The point is INFLATION is all consuming at the moment. What that means is that for any rational investor, their expectations have to be driven by things that agents will do to make this issue go away. Rightly or wrongly, that is principal component 1. And any investment outlook has to be driven by that....and only that core issue. Everything else is second order. So, what does that mean? It means that we are asking the Fed to undo a lot of what the covid has wrought on this poor world...including fiscal stimulus, skew in labor participation, supply chain issues, car prices...in other words everything. In the old days, the Fed had one tool available at its disposal...the policy rate. But the world has changed. It has a few more tools available....policy rate, IOER, QE/QT.... but, unfortunately, they are directed to the same end and to the same effect...tightening financial conditions. The working assumption has to be that, given that the Fed are on the backfoot, and are therefore left holding both the fiscal and monetary bag, they will do everything in their framework to make it someone else's problem. In their mind they were coconspirators but not the primary perpetrators, but they are left to clean up. In hindsight, we shouldn't have done the second stimulus. May be it was not warranted. But its a done deal. And, the politicians are not going to ask for their money back. Nor are the Covid related labor labor participation issues getting resolved in a hurry. So, the Fed finds itself in a position to solve the world's problems. Once you set it up like that, the answer becomes self evident...They are not that data dependent.. How Can they be?....And they will use every tool available to them to get out of the mess.... So, four hikes, balance sheet run off concurrently with end of the taper, earlier end of the taper...everything has to be on the table. This is where the 7% number places us. The question one has to ask oneself is what sort of risk allocation does one want to own when one sees the worlds' central bank in that sort of a pickle and the markets devoid of any significant risk premium. I, for one, think the answer is self evident. |