In his Jackson Hole symposium (zoom) speech today, you can expect Fed Chair Jerome Powell to stick to a theme he has grown to know and appreciate the most — the printing of U.S. dollars.
Central Bankers may not admit it but, they know how critical it is not to shock Wall Street. And, the surest way to spook investors and send them running for the hills, would be to indicate that the Fed actually cares about inflation. (Story continues below.)
But investors need not worry. Clearly, the Fed isn’t worried about the 5.4% increase in consumer prices or a record breaking 7.8% increase in producer prices.
Right now, for better or for worse, the Fed’s biggest priority is employment. This, despite an encouragingly low unemployment rate of 5.4%.
In fairness, the Fed has some economic headwinds it can point to: today’s consumer spending showed slower than expected growth, clocking in at an increase of 0.3% versus the expected 0.4%. And, there’s growing fear of more lockdowns amid an increasing Covid infection rates. Meanwhile, sentiment overall is weakening in part due to the tragedy overseas in Afghanistan.
As such, the Fed will likely argue that it is too early to move rates higher and, I would expect no change in its already telegraphed plan towards an eventual reduction in its $120 billion bond buying program.
Of course, inflation is clocking in at 5.4% and seemingly on the rise. But, the Fed insists this is “temporary” and the bond market, judging by the consistently low yield on the 10 year bond tends to agree.
I, for one, think the low yield is a tad crazy and artificially influenced by the Fed, itself, buying its own bonds… after all, would you be willing to lend money at a 1.3% return for an entire decade? Probably not! Especially when, over time, we see the price of just about everything going up, up and away.
So, yes. There’s some sophisticated financial planning that is coming courtesy of the Federal Reserve and we should expect it to continue in the near future. Given our knowledge of that, I’m a realist: don’t fight the Fed.
Instead, as an investor, I look for ways to still be in this market in a diversified fashion, while maintaining hedges against inflation. Real estate (including REITS because they’re liquid), commodities (specifically gold and oil), and currencies outside the U.S. dollar (assuming a currency is govern by a disciplined Central Bank) are all ways to invest with inflation in mind.
The Fed has given investors no choice but to go further and further out on the risk curve. GONE are the days of putting your money in a bank account, or treasuries, and collecting a nice pile of interest. Smart investors remain invested while simultaneously devoting part of their portfolios to hedges against inflation…
because despite what the Fed says, I, for one, can’t help that think once prices go up, it’s hard for them to come down.
In today’s markets:
U.S. stock futures were up in early trading.
U.S. Dollar and Treasuries
U.S. Treasury yields dropped ahead of the Fed’s expected announcement. The dollar was fell against a basket of major currencies.
|U.S. Dollar Index (DXY):||92.99||-0.07||-0.08%|
|U.S. 1 Year Treasury Bill||0.069%||-0.002||0.071%|
|U.S. 2 Year Treasury Note||0.246%||0.008||0.238%|
|U.S. 5 Year Treasury Note||0.843%||-0.005||0.847%|
|U.S. 10 Year Treasury Note||1.347%||-0.010||1.357%|
|U.S. 20 Year Treasury Bond||1.867%||-0.010||1.877%|
|U.S. 30 Year Treasury Bond||1.936%||-0.013||1.949%|
Stocks To Watch
Support.com, a company that offers technical support services, gained more than 150% over the last week, despite no company-related news. The stock benefited from a retail investor-driven short squeeze. The company has recently announced a reverse merger with Greenidge Generation Holdings, a carbon-neutral crypto transaction processor.
NeuroMetrix, a company developing wearable therapeutic neuro-stimulation devices, was up in premarket trading on retail investor interest. Retail investors saw an opportunity for a short squeeze, even as the stock’s short interest was significantly down in August.
Navios Maritime Acquisition announced a merger with Navios Maritime Partners. The two companies operate dry cargo vessels and tanker vessels respectively.
Commodities To Watch
Oil dropped was up as concerns over supply outweighed those over the delta variant. Gold was steady.
|WTI Crude Oil||$68.65||1.82%|
|Brent Crude Oil||$72.22||1.62%|
The global crypto market cap is $2.04T, a 1.88% increase over the last 24 hours. Bitcoin’s dominance is currently 43.79%, an increase of 0.16% in the same period.
|Symbol||Price||Chg. %||Market Cap.|