Cookie Cutter

First it was a hawkish Powell, then it was a hawkish Lagarde.  A very hawkish Lagarde who seems to be acting with a 3 month lag on Powell.  Apparently she didn't get the memo that inflation has peaked and is coming down.  Is she communicating by letter via sea mail with Powell and just received the letter in the mail about his hawkish Jackson Hole speech?  

Central banking is the embodiment of government work: easy, no accountability, and lots of incompetence.  No wonder you get such bad monetary policy.  The US had a demand side problem from too much fiscal stimulus and can fix it with demand side solutions.  That is why you are seeing some traction in fighting inflation with monetary tightening in the US.  But the EU has mostly a supply side problem(due to Russian gas cutoff and horrible energy policy) that they are trying to solve with demand side solutions.  Lagarde can't hike her way to more natural gas.  Raising rates to restrictive levels will just kill the economy and keep energy prices high.  The worst of both worlds.  Stagflation.  

These central bankers are such herd creatures.  They don't have an ounce of independent thought.  The only one sticking to their guns is the BOJ.  They are doing nothing.  Its comatose central banking 101.  Same old, same old.  These central bankers are straight out of a cookie factory.  Cookie cutter.  If you've heard one, you know what the next one will say.  They are always looking firmly in the rearview mirror and have no foresight.  They are constantly in CYA (cover your ass) mode.  They are basically politicians who no one can vote on.  

I wonder if Powell believes his own bullshit.  5%+ Fed funds rate and keeping them there for longer in 2023.  Does he think the US is the same economy that it was in the 1990s?  Or even the 1970s-1980s?  From the articles I read, he seems obsessed with being the next Volcker and being revered as an inflation fighter.  The US population in the 1970s was much younger and growing faster.  There was little globalization to keep wages in check.  There was no wage arbitrage.  Much less debt.  

Keeping rates above 5% for an extended time will guarantee a very weak housing market, and by extension, a deep recession.  Its not a matter of if, but when things blow up.  And we all know that when things blow up, the Fed will go back to their usual playbook of cutting in huge chunks, quickly, getting to the zero lower bound and then doing QE.  Same thing for the ECB.  By looking in the rear view mirror, they will ensure that the bond market will go back to the last regime of ZIRP and QE.  

High inflation isn't suddenly this new structural regime, its a function of massive money printing and handouts in 2020 and 2021.  Once again, the market is extrapolating a black swan event which caused inflation to spike as the new normal.  It is confusing cyclical with structural factors.  We have cyclically high inflation.  There is structurally low growth.  Structural low growth doesn't go away by having a crack up boom for 2 years.  The population is basically flatlining.  There is no productivity growth.  All future growth in the US, Europe, and East Asia will come from fiscal stimulus.  That's the only growth driver.  The developed economies have reached their end game in capitalism. Capitalism depends on continuous growth to function properly.  The inability to growth without fiscal largesse is a sign of secular stagnation.  

The Fed and ECB provided the 1-2 punch which is inflicting a lot of pain on the stock indices.  I didn't expect this reaction, but I also didn't go long.  It is days like Thursday which make me avoid the long side.  Going long in a bear market (unless after a deep pullback) is picking up quarters in front of a bulldozer.  Chasing strength in a bear market is asking the market to take your money.  Now that SPX has cracked wide open below 3900, I am staying on the sidelines.  I have levels where I am comfortable shorting, and at this juncture, not comfortable shorting under 3900.  That doesn't mean I won't get short if it goes under 3900, because that's exactly what I did in September.  I just need the right setup to do it.  And things aren't lined up yet.  With bond yields trending lower, its going to take a bit longer to build up the energy to make another sharp move lower like you saw from August 15 (SPX 4300) to September 30 (3600).  In investing, you don't have to swing.  You can wait for your pitch.  There are no called strikes, as Buffett says.  Its a time to wait.  No need to rush into a position with the low liquidity and usually boring environment of the final 2 weeks of the year.