The Fed and opportunity

Markets continued to react to the renewed realisation that the US Federal Reserve may well be delivering on what it has promised. This time around.

Federal Reserve developments are always a bit of a conundrum, but there are times we listen to the Fed, and times we do not. We completely disregarded what the Fed was saying about inflation being ’transitory’ and that rates would remain low.  Which was when the market generally, did listen to the Fed. This time around, all the way through this hiking cycle, we have been saying the Fed would be going well above 5%, and even to 6%, 7%. Agreeing with the Fed that they would be hiking further.

The reason we maintain an independent view of the Fed, suggesting paying head to their protonations on select occasion, is that we do our original thinking and research. Then, we see if there is a match, or mis-match to the Fed. Ascertaining as to whether there is a market advantage to be had.

What the market, it would seem, feels victim to is believing the Fed when the Fed is saying things they want to hear. Such as rates staying low, but then discounting the Fed with a superiority flourish when the Fed is saying things that it does not like to hear.

It is the biggest of errors in the pursuit of investment and trading artistic achievement, yes, it is an art, to ‘believe what one wants to believe’? Yet, it is something we all do to be sure. Nevertheless, our humble view has been that the Fed was wrong previously, but is on the money in with expectations of another two rate hikes at least.

If anything, we believe the Federal Reserve just made a big mistake. To have slowed to just 25 points. This will only drag out the further hiking cycle that is necessary to slay the inflation dragon in the way the Fed has said it wishes to do.

The US economy is having only momentary blips, of a month here or there, in economic relief. In the main, the run of data has been supportive of our long held view that further economic down-shifting lay ahead.

Over in the Eurozone, Retail Sales just suffered a sharp decline akin to the collapse seen in Australia. This plays nicely to our scenario of further consumer retrenchment in a broad sweep across western economies generally.

Earnings simply cannot endure such an environment. Which is why companies across all sectors of the US economy are now laying off staff in large numbers.

There has never been clearer writing on the wall. The economy of the US and elsewhere is in a state of decline, and there is no magic hard-floor from which there will be a definite bounce in activity. A plateau in severe sub-performance is looking to be the most likely outcome. Far from any fantastic fairytale idea of economic recovery and a Fed that is pivoting.

The mis-matching, of financial market pricing and economic reality, is both stark and stretched indeed. This is exactly what the greatest investment and trading opportunities look like. Do not see the situation as one of negativity. See the world for the reality that it is. Do our best to make it a better place. And at the same time protect your investments, businesses and your trading portfolio by seizing opportunities as they arise. Right now, there is actually great opportunity.

Markets have believed what they want to believe. This is the opportunity. One of realisation over blind faith in the market fairytale of it always goes up?