September 21, 2021
Global markets recovered some today, after yesterday’s action.
But as we discussed yesterday, this correction (now 5% peak to trough) probably has some more downside.
The drama surrounding a failing property developer in China has conjured up some financial crisis speculation. The vaccine mandates have introduced a catalyst for an uptick in unemployment. And what has been extremely hot economic activity has softened some in Q3. As you can see Atlanta Fed models have nearly cut the GDP estimate for the quarter in half, since August.
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These are all reasons to induce some profit taking in stocks, which we're seeing. But the most meaningful impediment to the asset price melt-up we've seen over the past eighteen months, is the Fed.
We have a change-in-policy-direction anticipated in tomorrow's Fed announcement. The knee-jerk reaction in markets when the Fed changes directions (from easing to tightening) is selling.
But, of course, this is a change of monetary policy direction with no reference points (not even the financial crisis). Beginning-the-end of QE, will still leave us with zero rates for quite some time. And, as we discussed, we have a fiscal bazooka ($4.7 trillion) that will be fired soon. And we have this … |
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There is five trillion dollars of new money in the economy. And both monetary and fiscal policies are still in a defensive position, against any destabilizing events. And both monetary and fiscal policies are still heavily promoting spending, not saving.
That makes the dip in stocks a gift to buy at lower prices. |
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