Time to Hedge Against USD
I’ve written an article on 12th Sep 2021 warning about the Equity Markets. The article turned out to be quite well-timed for that was the week that S&P peaked (at least until now) and volatility experienced a renewed vigor.
Now, what is the next macro event in the USA? It’s nothing new: it’s the debt ceiling. Once again, we are in the same situation we had in 2011 where Democrats held the power but wanted a bipartisan approach to this. Then, it was Barack Obama, now it is Joe Biden. The Republicans are well… still the same. We still have Mitch McConnell. Will history repeats itself? As of this writing, it is delayed.
Fed, Money Supply, Interest Rates, and Inflation
But you can’t delay the inevitable. Truth is, the US is now addicted to the cheap money supply (to be fair, many other sovereigns are too), and it seems like the Fed is more concerned with how the stock market performs than what they are mandated to do. To put it bluntly, it seems to me that the Fed is using the stock market as a gauge to see if what they are doing is right. For those of you who might not know, it is not uncommon for people in high finance to use the stock market to assess their actions and decisions. It was written in Timothy Geithner’s book “Stress Test” that during the Global Financial Crisis and decisions had to be made over the weekends, that they used the performance of the markets to assess if what they did were correct. Of course, the situation here is different, but what I can assure you is that certain practice stays.
Anyway, I might have gone slightly off-topic here. But here what I wanted to emphasize is this: the world knows that the Fed is in a tight spot. They know that the Fed badly needed to raise interest rates due to:
- The rising inflation (not only in US, but across the globe central banks had started to raise interest rates).
- The fact that if they don’t do it asap, when the market falls, they will not have any more tools on hand to deal with the situation. Yes, tapering of bond purchases was one, but let’s just say that some things once you let it run for too long, you…