The S&P 500 closed last Friday at 3,943.23 last Friday and closed slightly down for the day at 3,913.10 this afternoon. The small differential hides a rather eventful week marked by more consternation over inflation expectations and just when exactly ‘lift-off’ will occur in terms of the Federal Funds Rate. Inflation expectations are also rattling markets. However, the Fed held the line and projected continuing dovishness and accommodation. We’ve included the ‘dot plot’ from the Summary of Economic Projections that the Fed releases quarterly. It is anonymous projections of Federal Open Market Committee members on what rates will be in the future. As you can see, four unknown Governors forecasted rate rises in 2022, although we could probably guess who at least some the hawks are we’ll spare you.

Choppy Week Marked by Rate, Inflation Fears
Source: Federal Reserve

Inflation and rates seem to be dominating markets. What a lot of people may forget on market-days like Thursday is that the source of the market turmoil is actually a relatively good problem considering the fact that we are coming out of one of the worst episodes of the modern age. The Fed being too dovish in the face of the best economic projections in decades is a good problem.

The steady hand and disciplined messaging of Chairman Jerome Powell’s FOMC is beginning to be doubted by the bond markets partially because of the overwhelmingly positive economic expectations accompanying the ahead-of-schedule progress on vaccinations. The Fed’s zero rate policy will be hard to maintain in the type of unprecedented economic expansion, the skeptics reason. For those wishing to speculate on rates we’ve compiled a little poem below for you. We’d suggest leaving it to Fed members!

We’ll tell you once, But not more than twice,

Guessing future interest rates is a fool’s game,

You have got better odds with dice,

Look we know market days like Thursday are tough and sloppy. They produce a full-range of negative emotions; fear, panic, self-doubt and anger are just a few that we can think of. We’ll also let you in on a little secret. We’re feeling those same feelings with you.

However, part of what we provide is rigorous analysis anchored in data that gives us clarity from these lesser impulses that distract us from our goal of attaining superior risk adjusted returns. Keeping a cool head grounded in the data during market turmoil is perhaps one of the most priceless lessons we can convey to our subscribers and the institutions we serve. The last thing you want to do when you get these impulses is try to time the market on your own (without the aid of some serious computing power). Let us explain why.

How often do we hear about the investment mishaps of the economic minds we have all come to revere and cite? They tend to emphasize their successes, so not very often. The truth is, though, some of the people who shaped our modern understanding of markets only arrived at those conclusions after suffering the fate that is often a prerequisite to success in the world of investing; failure and losing a lot of money. Nobody beats the market all the time. Very few people correctly time when it is going to go down, and even if they are right it can still be hard to make money. John Maynard Keynes and his partner O.T. Falk had divided a fund of theirs to get more specialized in the late 20s. OT Falk’s fund got bearish too early on New York and piled back into American stocks on the eve of the crash against the advice of his astute partner, Keynes, and was wiped out. Keynes’ fund was doing better from his commodity trading.

However, as most investors know, if panicked selling is bad enough, all correlations move toward one, and nearly all asset prices go down. He was margin called just like the guy next to him who didn’t have his gift of disciplined reason. Keynes lost 75% of his wealth in 1929 despite having a well-timed Bearish view on US equities. Market timing is tough. Picking a stock is hard too, but not as hard as timing the market especially if you have time to wait for the benefits to accrue. If Keynes had that outcome with a well-timed bearish view on US equities in 1929, how do you think you’ll do?

Choppy Week Marked by Rate, Inflation Fears

This is why we advocate investing. Let the asset of equities work for you over time. Like we’ll say to the grave, equities have almost always been one of the best places to put your money over time. Definitely better than bonds. Sorry Fixed Income guys, we know it’s tough times for you guys. May the best asset-class win!

Our Vice President of Digital Assets, Leeor Shimron has his weekly crypto piece picked up by Coindesk.com so be sure to check it out. Look, guys we know there’s a lot of uncertainty and doubt out there. We are just coming out of a traumatic an overwhelmingly negative global pandemic. However, our analysis of VIX data suggests volatility will be subdued. This means cyclical stocks and we think most of all our ‘Epicenter’ picks should fly quite high based on historical relationships. Remember the data is better to listen to than that little devil on your shoulder telling you to sell.

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