We just heard from the US Federal Reserve Open Market Committee yesterday morning, the first for 2023.
The result? A 0.25% rate rise, taking the Federal Funds Rate to 4.5–4.75%. In less than a year, rates have risen by 4.5%, which is a rapid rise by any standard.
The language from the Federal Reserve press release tries to appear balanced — stating that the official economic statistics point to a recovering economy and that inflation continues to remain a threat coming off the Russia-Ukraine conflict. Though, it sounds more hawkish than dovish to me.
Ah…Fedspeak. These 289 words are possibly the most impactful verbiage in today’s economy. So much reliance by the market on the Fed’s outlook that the two are almost joined at the hip.
As much as the markets strive to provide some semblance that participants are able to trade freely, the truth is, it’s merely an illusion. Most have chosen to use their freedom to hug the shores of the Fed safety island.
You, me, and many who are aware of this fraudulent system might try and trade against the tide. However, the sheer volume of cash coming from financial institutions and managed funds that closely follow Fedspeak, means we’re contrarians trying our luck against the ocean of groupthinkers.
So, what’s our winning game plan and how do the odds measure up?
Trade with or against the markets?
There’s a famous saying, ‘don’t fight the Fed’, given you’d be taking positions against a colossal amount of cash.
However, those with the mental fortitude and sufficient expendable capital might outlive the herd mentality and book some significant profits.
Back when the system was more stable, these exceptional profits came only once in a blue moon. The system was behaving ‘just right’ for a longer time and therefore contrarians were on the ‘wrong’ side of history. And that’s why these contrarian investors command such a polarising view of their investment credentials. Mainstream pundits want to paint these legends as pariahs and outcasts who may be as good as a ‘stopped clock that gets the time right twice a day’.
Investors who follow these contrarians in the market know full well that success comes with patience and prudence. Many have battle scars, including eye-watering losses on several trades before managing to profit once the market cycle moved in their favour.
A fragile system cranks up the spin cycle
Those who swim with the tide may feel cocky and comfortable because of how long their system has beaten the naysayers who perpetually call for their collapse.
However, there are increasing signs that efforts to try and keep this system from falling apart are looking more desperate, and its impact is dwindling.
If I can draw a parallel, it’d be like the talking heads on mainstream media that report your news. For eons, they’ve been able to dominate public discourse. So confident are they of their dominance that at the height of the Wuhan pandemic, they arrogantly claimed that they’re the only trusted source on science.
This was peak arrogance. And while they talked about the Dunning-Kruger effect to deter people from thinking for themselves, we’ve seen since last year that it’s now coming back to hit them between the eyes.
With Elon Musk taking over Twitter, torrents of bombshells in the form of ‘The Twitter Files’ revealed a massive amount of scandal and coverup implicating governments, public institutions, corporations, academia and the media, as they acted against the interest of the public. The damage they’ve sustained has hit hard, with many organisations facing serious financial and reputational losses.
I have a feeling this is about to hit the Fed, global central banks, and the financial markets.
The Fed and other central banks downplayed inflation for much of 2021, even as prices were rising in goods and services, especially necessities. Many were suffering from rising living costs as their livelihoods were threatened by health mandates. Yet it was only late in 2021 when the Fed decided to accept that inflation would linger and began to move to combat it.
The rate rises last year caused the financial markets to tumble heavily, hitting businesses and households hard, especially in the second half of 2022. Though headline inflation figures peaked last September, that’s more political than a reflection of reality. After all, those who shop for food, pay their utility bills and essentials, see their costs skyrocket. Even in Australia, electricity bills rose 20% or so by mid-2022. And we’re about to brace for gas prices to rise some 50% or more in March.
How about those who found themselves without a job in the last two years? Given many small businesses were hit hard by the lockdowns and large corporations saw their bottom line shrink last year, many lack the capacity to hire more staff.
So any talk from central bank economists and government bureaus about a recovering economy is Orwellian speak. They can back it with fancy numbers, but most know it doesn’t match the reality.
Markets shake off Federal Reserve…again
Prior to the Fed announcing the outcome of its most recent meeting, leading market commentators and fund managers were divided over whether the Fed’s decision would prove bullish or bearish.
It was like tipping on who’d win the footy grand final. All forms of media outlets were pitting bulls and bears against each other.
You saw the outcome, the Fed appeared to try talking tough…and the markets laughed it off.
The Dow Jones Index was down as much as 500 points or 1.5% just after the press release statement before wiping out all the day’s losses in half an hour. Similarly, the NASDAQ Index was moderately down prior to the release but staged a mighty rally of almost 3% to close 2.3% higher.
So, it appears that the bears (me included) got it wrong, correct? For now, it seems like it.
Am I about to throw off my fur and put on my horns to join the bulls? Probably not.
Fact is, this is a fantasy economy conjured up by spin doctors using ‘official’ statistics. It’s largely detached from our reality. They’re only able to get away with it because it’s a political alibi they can use while they have a shred of cover from mainstream media.
Take away that cover (which is as sheer as a stripper’s bikini) and they’re exposed.
Knowing them for their uncanny ability to try to get ahead of the narrative, their rhetoric will turn soon. They’ll talk doom and gloom, and the markets could experience pretty dark days.
Maybe I’ll be wrong…and you can bookmark this article and have a good laugh at me for being a Cassandra.
But do you want to be riding with the herd on this one?
Editor, The Daily Reckoning Australia