The FED is an Expert in Lagging
The Federal Reserve’s sole objective now is to analyze data. After 2008, when Bernanke missed the worst financial crisis in American history, the FED started to take the stance that they wanted to be “data dependent.” Under Jerome Powell, they’ve really become obsessed with analyzing data in order to form their decisions.
From a prestige perspective, it makes total sense.
Jerome Powell wants to make sure that every policy decision he makes is powered and backed by data, so that it can be justified. If he’s wrong, he wants it to be because the data led him to a wrong conclusion, not because he made assumptions about the future that turned out to be false.
Powell doesn’t want to make any forward-looking predictions, which means that the FED is, by definition, behind the curve.
Their objective is simply to be just a little behind the curve, so that the lag doesn’t inflict any real damage. Basically, if the lag is so minimal that, meeting by meeting, the FED can course-correct, no real errors can veer the economy into a recession.
The Federal Reserve’s actions in 2022 have ended the 40-year boom in equities and the creation of the HAVES/HAVE NOTS culture, but even after this disastrous year for equities, all we did was go back by two years…
If you think that the impact of this historical reset will hurt only the rich, who have lost between 15% and 25% of their wealth this year, you’ve got another thing coming.
In 2023, the pain is coming to the real America – to Main Street, to jobs, housing and savings.
While Jerome Powell is the exorcist, trying to expel the evil spirits of inflation, it’s not without a price and the FED acknowledges this.
In their mind, no real economic longevity and growth can occur if inflation is entrenched, so the faster they can eliminate it, the quicker we can go back to lasting prosperity.
Their intent is genuine and not malicious, but they simply missed the boat by a full year and made up for lost time by breaking the back of the U.S. economy. Now, after a full year of this, the consequences are coming to Main Street.
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Here’s where this gets interesting, because we don’t think that we’ll see a crash in 2023. We think the devil of this decade will be Wall Street’s stubbornness in holding the bag – the muscle memory is that “getting shaken out” is stupid, since the FED eventually comes to the rescue.
What this does is prolong the reset, since no one wants to give up ground.
We think this is why the straw to break the camel’s back has not yet arrived, and it will only show up when it’s not Wall Street that is suffering, but Main Street.
We need politicians to panic. Until that happens, we can’t really call the bottom.
We think that it will take 6-8 more months until Washington is freaking out, so brace for a very tough time ahead. Things aren’t looking rosy.
As you can see, cash is performing better than 90% of asset classes, and that’s what happens when bubbles deflate:
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