It’s always a mug’s game attributing short-term market moves to any one factor but we drink from many different mugs, so here it goes.
We sent this out to some of our subscribers over the weekend:
If no Ukraine invasion today and Bullard tones it down a bit in his CNBC 8:30 ET interview tomorrow, given how offside the fast money is 👇🏽, it should result in a nice short-term pop to buy time to get more defensive.
Mega volatility until the Fed begins to turn the screws.
The Fed is still pumping liquidity into the markets albeit at a much slower clip until it ends next month.
The real market test begins on March 16th, when the Fed announces and begins its tightening cyle. Until then, as we wrote at the beginning of the year,
We have no idea where the market is headed tomorrow but shorts should beware. There is just too much liquidity and wealth in the global economy. Earnings for Q4 are going to come in very hot. Moreover, stocks seem the place to be with the new inflation regime and extremely low and negative real interest rates.
It’s extremely difficult to submerge a beach ball and hold it underwater for any significant time.
To go lower on sustained basis, we suspect the Fed will have to drain a lot of liquidity and destroy mucho wealth before they are done.
Asset Inflation And Price Inflation Are “Cousins”
Volcker recognized that when he was fighting inflation, he was actually fighting two kinds: asset inflation and price inflation. He called them “cousins,” and acknowledged that they had been created by the Fed. – Politico