Markets have either decided that the Fed will soon capitulate or had simply put so much money on one of the boat it had to tip the other way. Though the US financial media are framing it as rip in US stocks, it’s a very narrow view … so far this week virtually everything that trades in real time markets is up in dollar terms … bonds, stocks, other currencies, cryptocurrencies, and commodities from gold to silver to copper to platinum to oil. The rally in non-US stocks even exceeds the rally in US stocks.
As we have observed before, when you see virtually everything you price in any unit move together, you have to either posit some kind of spooky metaphysical conspiracy or conclude the real action is in your pricing unit, in this case the US Federal Reserve Note, the world’s most widely held and traded security. Financology, as readers know, favors the Occam’s Razor approach of the latter.
This poses a problem for its issuer, which has been pushing hard against the delayed effects of its plunge in 2020-2021, which became painfully obvious in consumer prices in 2022. It has come under tremendous pressure however to relent as the effects of its efforts are causing pain for those short dollars (in debt) … a very large constituency.
What to do now? If you accept the story told by Fed officials – that it will not soon relent – then you will want hold onto your dollars as this will soon pass. If you accept the story told by Wall Street – that the putative policy “pivot” is near, then you want to own other assets like stocks, bonds and commodities. If you’re not sure, you’ll want to do some of both.
I’m firmly in that last camp, but for reasons of record continue to think the Wall Street view is more wishful thinking than calculated rationality.