Riding the Roller Coaster: A Candid Look at the Financial Markets and Fed's Follies – The NEST Edge
(These articles are provided for historical context and because Sean's writing is just entertaining!)
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My bear market bounce comments from September look pretty damn good right now with these financial markets. When I'm trying to come up with topics to write about, I’ll hop on some financial media websites to see what the wizards of the financial world are predicting about the Fed's impact. One to two months ago? "The bottom is in and it's nothing but upside." Since then? "The world is ending." All I can do is laugh — it's out of control.
This week I did the classic wait-until-the-last-week-when-you-have-a-bunch-of-Continuing-Education to renew my CFP® designation. I completed 28 hours of CE in three days, mostly at night. While some was a great refresher and I learned a few new things, it mostly reminded me of the absurd theories my peers are using to manage accounts.
It's always been a semi-goal of mine to go back to school and get a Ph.D. I’m fairly certain I’d get kicked out for constantly telling the professor, “That only works in books.”
I’ve never seen a year where so many financial markets crash at once. Outside of the USD and cash, there isn’t anywhere to hide. Equities? Dumpster fire. Bonds? Train wreck. Commodities? As calm as Florida in hurricane season. As of the end of September, the U.S. dollar is up 17.6%. That’s a currency. That’s ridiculous.
They will teach classes, write books, and make documentaries about how the Fed is mishandling this. Even the financial media is starting to catch on — and they’re usually six months behind. Recently, the Bank of England blinked and may be reversing course on its fiscal policies.
Financial Markets and the Fed’s Impact
So I’m sitting here trying to figure out what else to say that I haven’t already. Honestly, it feels like Groundhog Day. The same story every day: things are bad and getting worse.
While the Fed deserves criticism for its missteps, it also deserves credit for doing exactly what it said it would: raise rates until inflation falls.
Recession, depression, or worse — it doesn’t matter.
Until inflation is under control, they will keep raising rates. When they do pivot, that’s not a good sign. Historically, that means something finally broke.
There’s a generation of traders who’ve always had the Fed supporting equities. But Powell has said market volatility won’t cause a policy change. Wall Street is on its own.
September inflation data came out and unsurprisingly it’s still sticky. Core inflation rose again. Wall Street continues chasing headlines from England instead of reading the data.
Headline inflation dropped from 8.3% to 8.2%. Expectations were for 8.1%. Core inflation rose from 6.3% to 6.6%.
Our Positioning
As of September, we exited all gold and treasury positions. We’re holding USD and, in our most aggressive portfolio, are still short tech, Russell 2000, consumer discretionary, high yield, biotech, and financials. Zero equities — domestic or abroad.
I don’t know how this unfolds, but I’m pretty sure this will be up there with the tech bubble and housing crisis.
But who am I? Just a kid who started yelling about inflation in June 2020 and about bear market bounces in August.
Buckle up.
– Sean McDougle, CFP®
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