Markets are confused by rates, inflation and recession risks, wondering what central banks will do. The smart money gets it – Central Banks are on top of this, and have the fine controls to avoid crises becoming catastrophes. Meanwhile… why is my drinks cupboard full of craft gin?
Rugby, Balloons and Employment Data – so much to consider this morning, but what this market needs a dose of common sense, understanding of central banks, and catharsis. Real interest rates and normalisation will provide solid foundations for real growth and recovery – not market froth!
Doom and Gloom dominates the economic mood. Analysts are predicting just how bad it will be next year – but easy money was the drug that fuelled the financial excesses of the 2010s, the market is still addicted to it, and the current dire sentiment is cold turkey..
In bonds there is truth: Apple’s Jumbo $5.5 bln corporate bond deal hints of a firmer market to come. A clear divide between US Recovery and European Slowdown is increasingly apparent – a weaker Euro will further add to European problems.
Central Banks have one real job: avoid inflation! It’s here, and the consequences will be devasting as conventional rate-hiking wisdom is used to fight a wholly exogenous supply side shock. There may be alternatives, but “credibility” is everything to Central Banks.
In bonds there is pain as prices tumble – but that does not change the fundamentals of investing in bonds. The risk is rising bond yields will expose the dangerous over-valuations low rate distortion has caused across other financial-assets, perhaps causing more than a few bubbles to pop.
It’s going to be a testing week for markets as a whole slew of negatives, challenges and no-see-ums threaten to overturn everything. It couldn’t look worse… unless of course you remember my key market mantra (read on), and that the sun usually comes up tomorrow. Happy Valentines..
As the West reopens, China’s lockdowns remain draconian. It has eased rates on the back of growth concerns. The result is growing monetary divergence, and China looks set to go down the same monetary experimentation route the West is now trying to reverse.
“The future may dimly be perceived through the veil of the past”, sounds like bad poetry, but has a point. The confusions and conflabulations that characterised 2021 will likely set the tone for what’s coming – what were the key themes of 2021? Best to understand them before trying to fathom what comes next.
Some of the heat was taken out the escalating China Syndrome yesterday when the Chinese regulator held a “secret” meeting with global firms, while Jay Powell took the pressure out of immediate taper fears. Both issues remain sources of massive future pressure on markets – they are sorted for now, but not resolved!
