About the author: Christian H. Cooper He is a portfolio manager at Subversive Capital Advisors and a former tenured member of the Council on Foreign Relations.
The world has changed. Did you notice? The irony of long-term investing is that it actually takes place over the long term. But humans, and certainly investors, are notoriously entrenched in the short term. This is a dangerous trait that Sapiens have when tectonic shifts seem to be underway.
The world’s breadbasket is at war in Europe, and the United States has just started shipping the iconic Bradley Fighting Vehicle to the front lines. With policy choices drawn from the pages of a dystopian novel, the United States has begun restricting the movement of technology and people involved in chip manufacturing.
Taiwan increased mandatory military service from 4 months to 12 months. Both Germany and Japan have embarked on a decade-defining rearmament. And a spike in Covid infections in China could trigger a new global wave of the pandemic. What does history tell us about the course of inflation after the pandemic and the war? There is no
If you listen closely to Federal Reserve Chairman Jerome Powell, you’ll notice strange variations on the phrases he uses repeatedly in his speeches. Powell is a product of Georgetown Prep, Princeton University, and the US Treasury. His use of this folklore speculation may seem strange given his background. That is, until he realized that it was a convention that Powell’s predecessor, Paul Volcker, used to name his memoirs. keep at it.
This is the moral question facing Fed Chair Powell and the fundamentally mispricing of the market. What are the implications of the loss of the peace dividend for an entire generation?
Most Fed members generally completed their graduate education in the 1990s, only a decade after Volcker’s battle against inflation in the 1980s. Just enough time for the topic to be ripe for academic study and for them to personally witness its effects.
You can’t really experience inflation above 10%. feel Like today’s textbooks. There are many risks when interest rates start to spiral out of control. Society begins to ask existential questions like “Who owns all this debt?” Inflation is not just economic encroachment. It also represents a decline in confidence within society as people and circumstances begin to reassess what the risks of a particular currency are. As our first early warning of the coming market turmoil, we should stick to the market indications of US debt default risk.
If you want to understand what the Fed has to do, policy is about the worldview of its members and how they feel when inflation gets out of hand, both academically and personally. You must understand that it is a product of experience.
In the words of Thomas Friedman, when we think of the world, it will no longer be flat, and deglobalization and the loss of peace dividends will only be amplified. Inflation won’t go away with structurally lower gas, more affordable housing being built, or lower and more stable food prices.
Yes, new supply chains will be built. Yes, Europe has different energy complexes. Yes, “nearshoring” ensures that your iPhone 15X+ arrives on time. But the bruises from the double blow of war and pandemic are just beginning. Uncertainty comes at a price, and markets seem to be missing the point.
As the month began, nonfarm payrolls picked up (no surprise) and markets recovered from technical lows (no surprise), but the Fed pushed interest rates into the 4.5% to 4.75% range. It is widely expected to raise again. A 2-year rate lower than what his Fed imposes in the short term means the market thinks a rate cut will come in any of its 2-year rolling his window .
If we believe that inflation will collapse from its current 6.5% to what this Fed (an institution that has experienced the Volcker era and is steeped in the social effects of sustained inflation) thinks, then we are at 2%. I am willing to do so. cut This means that markets must believe that one of the historic collapses of wages and input costs in economic history is about to occur. Inflation is much more likely to stabilize around 5%, and the Fed will continue to raise interest rates until inflation remains at 2%.
If interest rates rise longer, the world is no longer flat, and inflation stays at 5%, active management becomes important, growth investing is over, the Nasdaq is headed for pandemic lows…but if you Must own something, chips, energy, food. It’s not a bad place.
The United States is embarking on a continental Manhattan project-scale development of a 3-nanometer chip. The world recognizes that small reactors should be at the forefront of complex energy challenges, and that natural gas is likely to be the transition fuel. As for natural gas, prices have fallen so much that fertilizer production in Europe could rise just in time to meet what appears to be an increase in demand this spring, giving rise to net gains in an otherwise dark period. be a plus.
If this is the first market drop, it looks like it will last a little longer than expected. Common stocks he could fall 20% and interest rates could rise about 0.75 points. Each difficult period changes the situation, but the treatment remains the same. Have emergency cash ready. If possible, plan for four-month layoffs. Invest in something you can comfortably put away and check off in a year. Check in with your neighbor. Dollar cost average, know your valuation and own your worth. Get back to basics. In other words, keep doing it. that’s what i’m trying to do. I feel that this Fed is the same.
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