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Strategies & Market Trends : The Art of Investing -- Ignore unavailable to you. Want to Upgrade?

To: Rarebird who wrote (4453)	6/18/2022 1:29:05 PM
From: Sun Tzu	Respond to of 10576

I actually modeled for the SPX to have to borrow at historical junk bond rates and it still comes ahead. This drop is not about the valuations. So the rebound will be very sharp once the psychology turns.

To: Rarebird who wrote (4453)	6/18/2022 2:20:53 PM
From: Sun Tzu	Read Replies (2) \| Respond to of 10576

Let's talk this through a little more. If you take out the CPI components that are energy intensive (e.g. food delivery services), then the inflation is very reasonable. I think this is what messed up the Fed's transitory inflation story. They focused on the core elements and excluded food and energy, but the Russian invasion messed that up and made the headline inflation more permanent. So now Powell is talking about headline inflation rather than core. But at the same time, he is acknowledging the reality that these factors are outside of Fed's control. How high would the Fed have to raise the rates for food and energy prices to come down, when their supply has nothing to do with the interest rates? That level of destruction calls for a deep recession. And I can't see the Fed wanting to do that. The Fed's red line has always been fighting the structural embedding of inflation into the economy. They are getting aggressive now, not because of the inflation, but because they are seeing people asking for higher wages due to the rising headline inflation. So the key metric to watch is jobs and wage growth plus food and energy prices, not the PCI or PCE.