NFTRH; the way I see it

Of course, this is just one lowly participant viewing the market and the media/policy circus surrounding it. But Brainard did not just happen to pop out yesterday to explicitly state what the Fed minutes will probably imply. She was (in my opinion) sent out to jawbone the market in a calculated way.

Why? Well, I am still opinion making here, but the way I see it the Fed is trapped by its own “transitory” inflation that turned out not to be so transitory. The Fed sees what we see when we look at the 30yr bond yield (this morning pushing further into our 2.5% to 2.7% target area. They also see the 3 month T-bill literally demanding that they hike the Funds rate, not to mention taper the damn inflationary QE policy.

I find it rather pathetic how the Fed soft-served its policy as stocks were tanking in January-March but now, after a recovery in stocks and commodities, they trot out the hawk jawbone. Until recently, the Fed soft-served it because declining stocks and asset markets would do their job for them. Causing inflationary forces to dissipate as the herds seek liquidity in cash and bonds. Rising stocks and commodities only shines a harsher light on the inflation that the Fed created.

I have this chart for a reason. Several reasons, actually. But one important one is as a gauge to the Fed’s tolerance. Over the last couple of decades each push into the limiters stopped the move in yields. More than that, several of those occasions included a hawkish Fed that does not want, cannot allow inflation to get out of hand. At least they’ll do what they can to try to stop it.

In 2020 we projected this event that is happening right now. It is here and it never was going to be calm, or easy. It was going to be problematic.

The two questions I’ve had with regard to this date with the limiters are…

  1. Will the yield be limited once again, likely into a dis-inflationary (at best) environment or
  2. Will something happen that has not happened in decades, with the yield breaking its trend?

In my opinion, it is best for all involved for the market to follow the hawking Fed into a liquidation of some kind. In my opinion, that is what the Fed wants. In my opinion it wants the market to do the tightening for them.

The alternative is the von Mises style (crack-up-boom) Hellflation.

I prefer the first alternative, not only as a forward gold stock bull but as a market risk manager. It is time now to be managing risk, but as (most recently) in 2020 we saw how liquidation events are the mothers of opportunity. Gold stocks first, and then maybe (likely?) other areas.

Bottom Line

Risk

Risk of an inflationary breakout into parts unknown or in my opinion, more likely, a liquidation of some kind. Bonds are universally hated now. It’s as epic a sentiment setup as the pro-stocks setup was in Q1 2020. In my opinion, the odds favor a liquidation event of some kind, whether mini or maxi.

For my part, anything in my portfolio can be sold at any time now. I will not tolerate a liquidation. What I will do is to manage risk in whatever form it takes and be ready for the opportunities ahead.

Final thought: none of this is noted because Brainard popped out yesterday. It is noted because the Continuum is at the limiters and because the Fed is showing its self-conscious side at the same time.