Sometime around 2012, I was 50lbs heavier than I am today and something had to change. In theory the process was really quite simple; however, application of said process was awful. It began by eliminating most of the foods I was consuming each day. Bread gone. Sugar gone. Starch bye bye, and finally, dairy had to hit the streets. Basically, anything processed was off the menu. I was free to consume all the lean protein and vegetables I wanted. The first few days were the worst, as my body fought back and went through a withdrawal period that felt like a horrible flu. I was in shock at just how extremely my body reacted. Headaches, body aches, constipation, you name it, I was dealing with it. Then something happened. Around the 5th or 6th day the clouds lifted, my body adjusted and the weight began to fall off. Soon I was feeling better than I had in years and my body began to change. Fast forward 10 years and, for the most part, I’ve kept up the regime. Of course, as I write I’m struggling with a few extra pounds from the Holidays as I let my guard down and consumed a few things I shouldn’t have. OK, maybe ‘few’ is an understatement.
So, why on earth am I writing to you about this process? Well, it’s really quite simple. Since the great financial crisis of 2008, the US economy, and subsequently the stock market has enjoyed a never-ending supply of liquidity from our friendly Federal Reserve. While it began with standard monetary policy, adjusting rates to zero, the juice didn’t end there as it began to engage in direct purchases of assets from the financial sector, concluding with the final and most extreme act of purchasing high yield or junk bonds directly from corporations.
Keeping rates low and providing a backstop to financing activities, regardless of how healthy a corporate balance sheet was or is, resulted in the consistent moves higher that we have enjoyed in the stock market these last several years. Until now.
Beginning near the end of last year and confirmed through this week’s Fed’s minutes, it seems as if the Federal Reserve is changing its tune and skipping counting calories rather opting for full fledged Keto with some intermittent fasting thrown in just for fun. The result? Well, it is just what you’d expect as stocks gyrate mostly lower and money scurries out of areas most affected with this change in policy and into others that historically have fared much better.
If you’ve been watching our video updates you know we’ve not only been on the lookout for this but, as the year came to a close, we took action booking some gains in a few areas we felt were extremely extended looking to reduce risk, raise cash and take a step back. If you’re a client in our passive allocations, this is precisely why you saw the sell confirmations come through during the last week of the year, not waiting for the clock to strike midnight and the calendar to turn.
The irony of all of this is my core belief that the Fed has zero chance of actually accomplishing their objective. Unlike a disciplined diet for a determined individual, the American public has become completely dependent upon the liquidity measures of the Fed and once the side effects really begin to kick in, it is my opinion that the Fed will be powerless among the pervasive mood of the American public. Make no mistake, that if all of the liquidity is pulled from the system, that mood will sour very quickly.
If I were asked to paint my idea of what the future may hold, I would guess that the Fed continues on its path of fiscal responsibility with the result being a decline in stocks and the economy that quickly shifts its agenda. How can this happen you ask? Well, I believe that with a shock to the system that we’re starting to see now, areas within the CPI will come down quickly thus alleviating the inflationary concerns about which the Fed seems now to be interested. Couple this with the fact that I believe unemployment will once again start to rear its ugly head as the immediate need for staff abates due to a correlating decline in demand. Thus, the end result will be much lower inflation, higher than anticipated unemployment and…you guessed it… a much more accommodative Fed. That’s right, my core belief is, that despite the best intentions of our Federal Reserve, their actions will be short term with their long term trajectory of lower rates, accommodating policy and easy money still front and center. Remember, this is the same Fed that was convinced the initial CPI prints were ‘transitory.’ Ha!
From a market perspective I believe the next few months will be a bumpy ride. We have raised a good bit of cash and won’t hesitate to raise more if we feel it is necessary. The bumps will create potential opportunities as certain areas are sold off too aggressively. Thus, finally creating the value we’ve been looking for.
I hope you’ve enjoyed your holiday season, have had a happy new year thus far, and now are ready for what I believe will be a wild 2022. Rest assured, we’re ready for it!