Hey There Income Hunter,
Jerome Powell really took the market on a wild ride on Wednesday.
I was loving the higher open and I had high hopes for the beginning of a nice correction up.
Unfortunately, J-Pow had other plans and he took us for the third straight rollercoaster ride of the week.
This type of volatility is what long-term tops are made of and I don’t really have a problem with that.
What I do have a problem with is why the most important man in global financial markets is unwilling to give investors the straight scoop on what the Feds plans are.
I mean, come on – it is spelled out so clearly what the Fed’s role is on their website …
Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets.
I think we would agree they have actually failed to maintain stability and yesterday was a perfect example.
Today, I’ll break down the bullets that give us a clue as to what the Fed will do and the trades that make sense into the March meeting
My Take on Powell’s Speech:
J-Pow went on and on about how strong the economy is and how high inflation is, but never said what the plan was to do anything about it.
The Fed really has two issues that are making its job harder. You see, the central bank is only responsible for its dual mandate, which is to reach full employment and maintain stable inflation.
Well …
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- We may have low unemployment but it mostly comes from a low participation rate. Plus people may be working but inflation is killing their budgets.
- Now the Fed is cutting off all liquidity in the system to fight inflation but it is causing stress in the financial markets.
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Check out the speed at which the Nasdaq reached almost 1,400 new lows.
Keep an eye on the iShares high yield ETF (HYG) and iShares LQD credit ETFs (LQD).
5-year Bonds at Critical Resistance
The 1.7% level in the 5-year bond is at critical resistance. Treasury bonds usually provide a safe haven for investors in times of trouble.
Their lack of support speaks to a loss of confidence in the Fed and the possibility that investors may continue selling US assets to move into real assets, which looks to be the longest lasting trend of the decade.
Year-to-Date Performance
Finally, the chart below is the Fed’s worst fear. Higher oil prices will really make inflation stick – and possibly reach double digit rates down the road.
Bring It Home
Inflation plus the US nearing the end of it’s long-term cycle of debt is a lethal combination.
A strategy that makes a lot of sense in a bear market is to dollar cost average into precious metal miners.
This strategy turns a bear market into a massive opportunity.
You can accumulate low-priced quality miners that will be attractive takeover targets as the commodity bull market builds steam in the months ahead.
Here is the updated portfolio, and I”ll have new picks soon.
Have a great day and as always …
Live and Trade With Passion My Friend,
Griff