SPECIAL BRIEF: FOMC Prep, And 10 Year Investor Outlook (5min read)
Our Framework for Today and the Next 10 years.
Good Morning. We compiled a special post and hope you get something out of it more than the usual Bank analysis. If so, tell your friends.
Table of Contents
For Active Traders: Well Thought-out Assessment Pre Fed
For MACRO/ Statistical Traders: Statistically Speaking After Big Moves
For 10 Year Investors: deficits, growth industries, and economic future fallout
Below, is the framework of what’s happening now.. There will be tangents within that framework, but this is the path we are on.- VBL
***Plus GS, and JPM Fed prep reports***
1- For Active Traders
Well Thought-out Assessment Pre Fed - Academy Securities
Expect 75 bps.
Expect tough talk on inflation front, but tempered with data dependency.
Expect markets to like the bigger hike, as it “proves” the fight against inflation is real.
Expect markets to get excited about the data dependency.
Then, the harsh reality that to quash inflation, we are inviting a recession, much of the inflation pressure is supply side which is not helped (and in fact hindered) by rate hikes, and things to resume their weakness (hopefully any rally lasts more than a day or two, but I’m dubious)
If we get 50 bps, I think bonds get hit hard as the market is almost begging the fed to hike 75 or more. That will be bad for risk assets.
Note: This was our take this morning in the GoldFix podcast. 50bps kills stocks, and 100 may lift them. what they don’t do now, they will have to do later
One bright spot this morning was that stocks, including the Nasdaq futures, traded well even as bitcoin approached $20k.
Goldfix: Any port in a storm?
Now back to the angst of waiting until this afternoon and second guessing ourselves every minute until then!
2- For MACRO/ Statistical Traders
Statistically Speaking After Big Moves- datatrek
history says the following about buying S&P closes of more than a 3.5 percent daily decline: The odds of making decent money over the next year are quite good. Win rates range from 78 – 91 percent and average returns run 17 – 26 percent.
The caveat is that outsized down days both cluster and can signal a persistent bear market. You can’t go all-in on just one bad day and be assured of a positive result in a year’s time.
The bottom line:
even on outsized bad days this year we have remained cautious because we believe the current investment environment is sufficiently similar to past bear markets to warrant a go-slow approach. Yes, we know we are betting against the averages. If your take is more sanguine than ours, the data above may lead you to a different perspective
3- For 10 to 20 Year Investors
Below are thoughts we’ve had and expressed for quite sometime but not in one aggregate post for readers. This is an attempt to do so in a brief organized way today as it all hit us based on some events we’re seeing unfold and conversations we’re having. There will be more details on this in coming weeks, but for now it should get you thinking. It is a first draft.
Today shouldn’t mean anything to you, the 10 year investor specifically. But today is a rare convergence of micro, macro, and structural drivers. Rarely do planets align like this, but today they did. We feel strongly about the next 10 years and this kind of popped into our heads from today’s work
We’ve observed this for years and are quite confident in the path forward should the USA excel in the coming new world, and are confident it will. But there’s a price to be paid as well.
10-20 Year Outlook for the USA
The deficit will be permanently monetized which means much of the debt not be sold back out. It will be held by the gov’t until it matures. Like post Vietnam
This will cause many things and are hard to specifically handicap. But what will generally happen is this:
This like the 1970s will cause a massive split in the economy
Old economy will be neglected, new economy will be subsidized by govt
no-one will lend anyone money internationally due to most of them permanently monetizing debt and thus domestic standards of living will go down greatly in some areas of the economy and country.
GDP money will be needed to service debt and to restructure the economy. You will have more crime, less cops, and dirty streets.
The rise of self sufficiency will be the battle cry, as if it isn’t already among the smart ones.
Many hub cities will go downhill as their hub status will not be as important.
Some will rise up as benefits of changing industry, relocation preferences, and lack of legacy indebtedness.
Cities will be like the old mall vs the new mall. Like the Dodgers relocating
Covid was an acute version of a now chronic problem as we move forward in the future
Deglobalization and reduced complexity will drive economies now
Mercantilism and everything that comes with that
Sanctions, trade wars, are acute instances of chronic trends
Supply Chains and Emerging Tech will drive future US growth
New economy includes on-shoring: chips, manufacturing, and growing domestic inventories of key rare earths and metals
applications of tech like cybersecurity will rise, as will simple manufacturing plants of domestic resources.
We will strive aggressively to export more than we import (mercantilism)
that means saving and truly investing will rise again
monetary policy will be useless in the face of this juggernaut path
We will suffer, but Europe may suffer infinitely more
One investment recommendation: books will be to the next generation what baseball cards and comics were to our parents and us.
What happened in the Bronx when Robert Moses decided to build the Cross Bronx expressway is what will happen to large swaths of country now. The old will be bulldozed over for the new. People will not be able to keep up, and government wont be able to save us because they are too indebted.
It already happened all at once from Covid. Now it will happen in various gradual but unalterable events. This, to us, is the framework of what is happening now. There will be tangents within the framework, but this is the path.
Some concepts discussed a byproduct of these materials: Tainter’s Collapse of Complexity, When Money Dies, anything good on Mercantilism, and Robert Moses the Power Broker