The Fed’s Sleight of Hand

Headlines out of the Fed lately have been suggesting that a slow down in the pace of rate increases is imminent. Or not…

On November 13 the WSJ trumpeted…

And then on November 14…

Waller warned:

…the Fed will want to see more evidence of that (declining inflation) happening before it can consider any end to rate rises.

While Brainard boasted:

A slower pace of rate rises would allow the Fed more time to study how its moves this year are slowing the economy in ways that can’t be observed yet, Ms. Brainard said.

Holy cow! What should you, as an individual investor, make of all this?

It’s all bullS#@%!!

Bread and Circuses

It’s sleight of hand that’s supposed to keep you distracted from what’s really going on. For instance…

For the past couple months, the media has been sweeping the national consciousness up into the bin of the midterm elections. It’s almost like they’ve dragged on past election day to keep the nail-biting suspense going and viewers on the edge of their seats…

But what’s the reality of it all?

Politically, it doesn’t really matter who gets elected from either party. Because in the end, they all end up voting with each other 80% of the time (when they actually do vote that is). They keep doing things like stuffing billions in spending for a war in which the US has no strategic interest (other than maybe where the president’s son is concerned) into a continuing resolution that’s meant to keep paying the country’s bills because Congress hasn’t had time to bother with the budget appropriations approval process. At least not before the election…

The drama is all “bread and circuses.” Meant to distract from the reality of how bad things have become economically.

The Fed’s own headlines are more of the same. More sleight of hand necessary to maintain the fake economy.

So What’s Really Going On?

So where is the Fed? Carefully watching the economic indicators that tell us where we’ve been while giving us little insight into where we are going. 

Let’s recap…

The Fed began raising rates back in March of this year once they realized inflation wouldn’t be transitory. Since then they’ve boosted rates 3.75% in less than a year. And what have they accomplished? 

Not much.

Their hikes pushed bond yields to slightly over 4% — a level starting to approach something respectable for a 10 year commitment of your money. (As I’m making these notes, the 10-year is back yielding 3.8%.)

They’ve deflated asset prices. High flying growth/tech stocks (and most of the rest of the market) have come back nearer to earth making a lot of investors poorer in the process.

They’ve also managed to slow the real estate boom. Folks have decided that spending 7% to finance a house that’s 40% more expensive than it was a year ago just might be a risky bet. So butts on hands it is… 

The pace of inflation has slowed… instead of prices rising 9.1% a year (like they did back in June) they’re now only rising 7.7% a year. 

But the reality is that the Fed has had little to nothing to do with the slowdown in rising prices. But they can’t let you think that.

I’ll explain in more detail in your next letter…

Make the trend your friend,

Bob Byrne
Editor, Streetlight Daily