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TPW Advisory Friday Musings: Gut Punch

18/06/2021
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Estratégia Global Investimentos Temáticos Macro Internacional

Usually one sees stars when one is punched in the head, but its 2021 and all things are possible so the post Fed meet punch in the belly (of the curve) had folks seeing dots, moving dots.

Well, that’s fine and it usually passes after a few seconds but in this case the moving dots have generated tons of press and a fair bit of cross asset volatility.

My question is why? The dot plot has been one of the most unreliable of indicators – it’s simply various governors’ guesses about where rates will be some time off in the pretty distant future. Compounding that is the fact that the current dot plot was generated in the midst of spiking economic indicators driven largely by base comparisons that are no longer valid (at least in CPI terms).

Notwithstanding Jay Powell’s comment that one should “take the dot plot with a big grain of salt”) it has been elevated to gospel showing the Fed had abandoned its FAIT strategy, will not be data dependent and will move aggressively to quench inflation. This in turn was taken to suggest inflation will indeed be “transitory” as the Fed has suggested. Talk about squaring the circle.

So what does it all mean – does one have to go into the concussion protocol and not play – take the summer off as it were?

I continue to expect a shift from a staggered reopening to a synchronized global recovery as we move through the 2H of 2021 and enter 2022. I see this as USD & UST bearish and bullish for non US equity, Commodities and thematics.

I do not believe the Fed has abandoned its AIT approach by any means and think the coming months will present a cleaner data set that will allow for further analysis & “testing times”.

We are all macro investors now and the focus will shift to the passage of the Biden Jobs and Families plan which in turn will impact the inflation, rates & cross asset outlook. I expect passage along reconciliation lines.

I guess it comes down to if you think the Fed will act aggressively you can buy the long end of the UST curve, the dollar and Growth stocks. If you don’t, then don’t – buy the Value stocks, non US equity & Commodities that are being offered at some pretty nice entry points. I reviewed the technical positions in our two model portfolios & they remain sound. Supportive JPM work on stock – bond flows coupled with the GS Financial Conditions Index in uber easy territory supports my remaining in the latter camp.

Jay Pelosky

Jay Pelosky
Estrategista Global - TPW Advisory
Nova York, EUA

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