Riding the Roller Coaster: A Candid Look at the Financial Markets and Fed's Follies- The NEST Edge
(These articles are provided for historical context and cause Sean's writing is just entertaining!)
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My bear market bounce comments from September look pretty damn good right now with these financial markets. When I'm trying to come up with topics to write about, often I’ll hop on some financial media websites to see what the wizards of the financial world are predicting about Fed's impact. 1 to 2 months ago? The bottom is in and it's nothing but upside. Since then? The world is ending. All I can do is laugh because it's out of control.
This week I did the classic wait until the last week when you have a bunch of Continuing Education (to renew CFP® designation) due. I completed 28 hours of CE in three days with the bulk of that at night. While some of it was an excellent refresher and I did learn some new stuff, it was a lot more of a reminder of the absurd theories and strategies my peers use to manage client accounts.
It's always been a semi-goal of mine to go back to school and get my Ph.D.
I’m honestly certain I’d get kicked out of the program because I would constantly tell the professor, “That only works in books.” I will be the first one to raise my hand and say that I’ve never seen a year with so many different financial markets all crashing at the same time. Outside of the USD and cash, there really isn't anywhere to hide. Equities are a dumpster fire, bonds are a train wreck and commodities are about as calm as Florida in hurricane season. Only one part of the currency market is behaving. And when I say behaving I mean it's been a rocket ship this year. As of the end of September, the US dollar is up 17.6%. That's a currency. That's ridiculous!I have and will continue to say that they will teach classes, write books, make movies, and an unknown number of documentaries on how the FED is absolutely S#*ting the bed with this whole situation. Even the financial media is starting to agree and they are usually 6+ months behind. The big news recently is that the Bank of England (FED’s English peers) finally blinked and has maybe started reversing course with its fiscal policies.
Financial Markets and the Fed's Impact
So I’m sitting here trying to figure out what else to say that I have not been saying all year and there really isn't much. I honestly feel like I'm living in Bill Murray's Groundhog Day. It’s the same story every day. Things are bad and they are getting worse.While the FED’s impact is clearly out of control this year, Wall Street and financial markets are up to its old tricks in trying to be the top dog of the mountain with this narrative that everything is fine because the FED's impact is going to pivot and everything will go back to normal. Though the FED justifiably does deserve to get a lot of credit for screwing this up they also deserve credit for doing exactly what they said they are going to do: they are going to increase rates until inflation goes down.
Recession, depression, or worse it doesn't matter.
Until they get inflation under control they are going to increase rates. What confuses me is when they do pivot, it is not a good thing. Historically it's because something finally broke.There is an entire generation of traders who have always had the FED at their back supporting equity prices. And not worrying about Fed's impact. But, if you take him at his word, Powell (head of the FED) has stated that market volatility is not going to cause a policy change from the FED. In short, ol’ Wall Street is on its own. September Inflation data came out and unsurprisingly inflation is once again stickier than financial markets were hoping. Core inflation actually went up. And Wall Street can only pay attention to the chatter of a maybe debate of something occurring in England. It’s days like today that I just look around and ask who in the hell believes this crap?
Headline inflation did decrease from 8.3% to 8.2% which did not “beat expectations” as consensus had inflation fading to 8.1% AGAIN. Core inflation went up AGAIN from 6.3% to 6.6%.
Our positioning since September has changed in that all portfolios are totally out of gold and treasuries. We are still holding US dollars and in our most aggressive portfolio, we are still short tech, Russell 2k, consumer discretionary, high yield, biotech, and financials. Zero equities domestic or abroad. I have no idea how this is all going to unfold, but I know it's very probable that when this whole mess is past us, it will be right up there with the tech bubble and the housing crisis. But who am I; I'm just a kid who started screaming about inflation in June of 2020, and in August was screaming about a bear market bounce.Buckle up buttercup.- Sean McDougle, CFP®