Monday, October 18, 2021

Morning Note: The Fed's Well-Founded Fear

The 2-year treasury yield (in orange below) -- a presumed harbinger of Fed funds rates (white line) to come -- is suggesting that the Fed is not far away from doing more than simply tapering its monthly bond purchases:

Yes, we're in the camp that thinks inflation's ultimately a longer-term thing than many still anticipate, but we also think today's Fed members are about as eager to hike rates as they are about getting all of their respective teeth pulled. 

You see, they (their institution) are undeniably (well, they deny it) culpable (largely so) for blowing up asset bubbles to the point where a consequentially rising Fed funds rate, they fear, will have markets crashing down all around them.

In a nutshell, for the moment, the bond market is beginning to believe, but the stock market remains uber sanguine. 

Not that the Fed won't, under pressure, ultimately give raising their benchmark rate a go, it's that we think their fears are well founded. I.e., anything "consequential" (which may not be much) will likely have markets reeling and them rapidly reversing course.

Asian equities were mixed overnight, with half of the 16 markets we track closing lower.

Europe's a mess so far this morning, with every bourse we track in the red, as I type.

US stocks are battling their way back after opening notably lower: Dow down 76 points (0.22%), SP500 down 0.03%, SP500 Equal Weight down 0.08%, Nasdaq 100 up 0.14%, Nasdaq Comp up 0.11%, Russell 2000 down 0.16%.

The VIX sits at 16.99, up 4.23%.

Oil futures are up 0.84%, gold's up 0.10%, silver's down 0.44%, copper futures are down 0.19% and the ag complex is down 0.37%.

The 10-year treasury is down (yield up) and the dollar is up 0.03%.

Led by uranium miners, ALB (lithium miner), energy stocks, AMD (chip maker) and solar stocks -- but dragged by Latin American equities, wind stocks, utilities stocks, Eurozone equities and AT&T -- our core portfolio is down 0.22% to start the session.

"Our propensities related to fear, euphoria, herding, and culture, however, virtually define finance."   
--Alan Greenspan

Have a great day!

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