People are always enamored with up when things look up & enamored with down when things look down. For this reason it always difficult to time the market, a term used to describe a major pivot in market direction.

     The first thing we need to discuss is the glorious Federal Reserve which sits at the helm of the international financial market. I am of the belief that the Fed is dying, not necessarily because of its own decisions, but due to its commitment to preserve political system which is overburdened with many rich men and women who disagree about the nation’s direction but agree to one thing: money printing. The Job of the Federal Reserve, particularly prior to it growing more independent and separate from the US Treasury department, was to ensure easy financing for the Federal Government. Jerome Powell, Janet Yellen and Ben Bernanke all agreed to fund the US Government regardless of its demands. Now the war chest has hit its wits end. As Jerome Powell raises rates, Uncle Sam’s interest payments will rise and Uncle Sam won’t be happy about that. Running continuous deficits and major ambitions have led the US to what I would now consider an inflection point. The Federal Reserve is dying.

     It has been asked to deal with far too many of the nations problems and the veil of privacy has been pulled back. We know that the US and its allies will not suffer long under these high rates because of their impressive debt loads. We do not know who will buy the bonds that’ll be from next year’s budget, but it might be the Fed. The Fed meeting minutes suggests slower rate hikes but a higher terminal rate. The Federal Funds Rates, already nestled in at 400 basis points (3.75% - 4.00%) is likely to rise to 450 basis points (4.25% - 4.50%) in December. While Jerome Powell has made repetitive mentions of cutting the balance sheet of the Federal Reserve there has been no significant moves in that direction. We probably know that the Federal Reserve cannot sell that.

     In general, my personal outlook is as follows. By the second quarter of 2023 we will have a Federal Funds rate of 525 basis points (5.00% - 5.25%). By the Second Quarter of 2023, Consumer Price Inflation (CPI) will attempt to go lower than 5.0%, barring any significant energy crisis in Europe or grand international catastrophe. When this happens, there will be some market rally in hopes that the Federal Reserve will begin cutting rates. Somewhere in the second half of 2023, the rate will peak around 575 basis points (5.5% - 5.75%) with CPI stubbornly between 3% - 5%. The Federal Reserve will likely begin to lower rates in the first quarter of 2024, with inflation reading between 2% - 4%.

     I highly doubt that the Federal Reserve will return rates to below 1%, although I have heard many people hint at that. I think the Federal Funds Rate (FFR) needs to be negative when considering real rates. If CPI is 3% and FFR is 2%, real rates are negative and somehow the economy will move forward. I do not see 2% inflation at the end of this era, but I do think real rates will remain sufficiently negative, whether that comes with or without 0% rates from the FED, I do not know.

     Assets will do you much better than a dollar in times like this. I do think the period of time where assets will begin their march upward will come right when the FFR is greater than the CPI. Thereafter, the CPI will be stubborn so the market will be too. I will not have target prices here.

     People are always enamored with up when things look up & enamored with down when things look down. For this reason it always difficult to time the market, a term used to describe a major pivot in market direction.

     The first thing we need to discuss is the glorious Federal Reserve which sits at the helm of the international financial market. I am of the belief that the Fed is dying, not necessarily because of its own decisions, but due to its commitment to preserve political system which is overburdened with many rich men and women who disagree about the nation’s direction but agree to one thing: money printing. The Job of the Federal Reserve, particularly prior to it growing more independent and separate from the US Treasury department, was to ensure easy financing for the Federal Government. Jerome Powell, Janet Yellen and Ben Bernanke all agreed to fund the US Government regardless of its demands. Now the war chest has hit its wits end. As Jerome Powell raises rates, Uncle Sam’s interest payments will rise and Uncle Sam won’t be happy about that. Running continuous deficits and major ambitions have led the US to what I would now consider an inflection point. The Federal Reserve is dying.

     It has been asked to deal with far too many of the nations problems and the veil of privacy has been pulled back. We know that the US and its allies will not suffer long under these high rates because of their impressive debt loads. We do not know who will buy the bonds that’ll be from next year’s budget, but it might be the Fed. The Fed meeting minutes suggests slower rate hikes but a higher terminal rate. The Federal Funds Rates, already nestled in at 400 basis points (3.75% - 4.00%) is likely to rise to 450 basis points (4.25% - 4.50%) in December. While Jerome Powell has made repetitive mentions of cutting the balance sheet of the Federal Reserve there has been no significant moves in that direction. We probably know that the Federal Reserve cannot sell that.

     In general, my personal outlook is as follows. By the second quarter of 2023 we will have a Federal Funds rate of 525 basis points (5.00% - 5.25%). By the Second Quarter of 2023, Consumer Price Inflation (CPI) will attempt to go lower than 5.0%, barring any significant energy crisis in Europe or grand international catastrophe. When this happens, there will be some market rally in hopes that the Federal Reserve will begin cutting rates. Somewhere in the second half of 2023, the rate will peak around 575 basis points (5.5% - 5.75%) with CPI stubbornly between 3% - 5%. The Federal Reserve will likely begin to lower rates in the first quarter of 2024, with inflation reading between 2% - 4%.

     I highly doubt that the Federal Reserve will return rates to below 1%, although I have heard many people hint at that. I think the Federal Funds Rate (FFR) needs to be negative when considering real rates. If CPI is 3% and FFR is 2%, real rates are negative and somehow the economy will move forward. I do not see 2% inflation at the end of this era, but I do think real rates will remain sufficiently negative, whether that comes with or without 0% rates from the FED, I do not know.

     Assets will do you much better than a dollar in times like this. I do think the period of time where assets will begin their march upward will come right when the FFR is greater than the CPI. Thereafter, the CPI will be stubborn so the market will be too. I will not have target prices here.