The FED Has Pivoted And This Is What You Should Consider In Your Portfolio
Are we nearing the end of a world order?
Just a few weeks ago, the FED gave a message of optimism. Just at that moment, the indices soared, obtaining the best results in a month since 1930. It happened exactly the same in the crypto world, where the main winner was Ethereum, which saw its price increase by 70% in just a few weeks.
This Friday, Jerome Powell spoke at the annual Jackson Hole Economic Symposium, and the Fed chairman explained that the US central bank will make a huge effort to fight inflation. Powell emphasized that fighting this inflation will require tight monetary policy (QT and rate hikes).
This statement, as expected, caused all markets to move in the opposite direction from what they had been doing for a few weeks (S&P 500, -3.3%).
It is totally unbelievable how much power the major central banks have over the economy. As we have always supported, ever since the gold standard was cut in 1971. It is far more important what they do than what the very nature of human supply and demand does.
You can study the world's most complex master's degree in finance, and you will see how there is no point in doing cash flow discounting. It makes much more sense to study the supply and demand of markets, taking into account liquidity injections through the repurchase of their own bonds.
Ray Dalio already anticipated this.
A few months ago, we summarized Ray Dalio's new book, where he talks about the change in the world order and how the US would cease to be the main world power.
For this to happen, we had to go through a period of 6 phases:
In our view, we are currently between the fifth and sixth stages of the cycle. Many will say that interest rates, as of today, are not at 0%, and that is true. But we are all aware that this rate hike to try to alleviate inflation is simply postponing an announced crisis.
Why these statements by Powell?
Although it may not seem like it, Powell is preparing the environment to be able to print more money in early/mid-2023. For this to happen, we must move from a very negative environment, such as the one he is painting today, to a much more positive environment, such as the one he will show us in future interventions.
This more positive scenario has already begun to be drawn by Biden, where he said that in the month of July, there had been no inflation. This is clearly a lie. It is true that inflation did decline, but we have much higher levels of inflation than the Fed is aiming for.
However, the data that really worry is not that of the USA, but that of the UK. Last week Citibank forecast inflation of 18% for 2023, and currently, this inflation is already at 15%.
How to prepare for such scenarios?
We have already warned many times that the dollar and the euro are slowly drowning in an ocean. Powell and Lagarde are trying to delay the death. But little by little, the ship is sinking.
We only need to look at one of the best leading indicators, that of the credit adjustment of the markets.
In the last 30 years, every time this adjustment has been positive, it has preceded a recession. Even more so now that debt is well over 100% of GDP.
Major institutional investors are already taking their money out of the indexes and into much more useful alternatives.