The Federal Reserve Begins To Reverse Course
The Fed listened, and now we wait. Armchair economists, armchair portfolio managers, armchair policy wonks, etc: we all wait for a complicated set of results.
Reuters story here: click here.
Good luck to them, you have already read the commentary here. Here are the highlights (or lowlights, this isn’t financial advice, dyor).
Financial asset prices have presumed low interest rates, today and in the future. That is no longer valid.
Riskier assets have appreciated the most. Since interest rates are low, “There Is No Alternative (TINA).” Whether or not there is a reallocation of assets is now the key (scroll down, this will affect the glue that is the cornerstone, the result of what has been explained here. Note that this is going to be true, irrespective of the earnings of “Company X.” I have frequently noted, via example, that the Bank of Japan (and other national pension providers) does not care one lick about whether or not NFLX underperforms or outperforms its earnings estimates. Not one. That is not the way that global asset allocation works, and the pool of money they control dwarfs your single mutual fund holding. It not a blip on the screen, it’s not a speck of dust on the screen either. CNBC spending 10 minutes on this, and you watching, is because their agenda is eyeballs over everything else.
Higher cost of borrowing will not only affect consumers, but companies as well. Companies have borrowed money to buy back their own stock, and this has been very powerful.
Inflation hasn’t been transitory, and the Ukraine situation isn’t helping.
These are facts, all of them indisputable.
While we have no crystal ball, our easy prediction is that these bullet points will not resolve themselves easily.