Ahead of the announcement by the FED. There is a lot of market comment from industry gurus e.g. the comments from Blackrock’s CEO and PIMCO’s CEO advocating an immediate FED taper.
Here below I strongly suggest there will be no Fed taper forthcoming as the data is in fact moving in other direction.
We have seen some very soft manufacturing and consumer data recently. The latest US PPI decline indicates the 1% current US inflation reading may be dropping very close to zero on the next data release.
Money velocity has collapsed and shows no signs of reversing. It is almost impossible to believe the FED would tighten policy into this current environment. The opposite would appear more likely especially with the new, ultra dovish, Fed chairman taking the reigns in the new year.
Here WF on the latest PPI reading.
Here WF on today’s cpi reading at 1.2%
Here WF on the consumer confidence reading
And here the latest manufacturing data from the US
In summary the fundamental data is not ‘recovery’ data. This data is more the final stage of a ‘winter cycle’ economy. Near flat lining data which shows an economy very close to deflation. Very little permanent job creation, low and falling money velocity.
The disconnect to asset prices and the bull market for equities could not be clearer. And whats more there are no technical indicators that suggest a market short here. If anything the market is technically gaining support here as new buyers chase price higher on a broad basis.
One thing here. Occasionally, the market gets it wrong and this could be one of those moments, I’m afraid.
There is a famous market saying worth repeating here at this point. ‘Never get ahead of the tape’. What this means is don’t think you know better than the market where things are heading! Yes this is correct. I would never blindly short an equity market like this no matter the gap between price and the fundamental data. An important but is coming here. I would tactically perpetually look for low historic volatility but highly geared instruments that offer some hedge to this blind bull market. Option puts are the obvious instrument of choice for this scenario. This strategy will shave a small margin off your upside if a continuation of trend occurs. But if mr market is wrong here the reversal will be immense and therefore worth tactically hedging with options i suggest rather than futures, for obvious reasons!
For the vast majority of the population the upside of this asset boom is totally bypassing them. In stead, the vast majority are experiencing the down sides to the asset booms we are enjoying. Their rents are rising more quickly than their incomes, as are their food and energy bills. Their jobs are increasingly part time and low paid. Real incomes are perpetually (compounding) falling for middle and lower income families. For those outside finance and or the wealthy few there is no recovery. Its quite the reverse. I live in Andorra but when I travel to Barcelona i see the beggars every day lining the street and eating from the wast bins. Credit contracts year on year in Spain. Ordinary people on ordinary salaries cannot borrow for love nor money. Ordinary companies cannot borrow for love nor money. The monthly fiat interest is literally eating the country alive.
So please spare a thought (and make a charity contribution!) to the 90% of the population who are outside of our small protected group. Things are very very bad and getting worse for the 90%.
All the best
Rich
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