10Dec12:24 pmEST

It's Not About Ad Hominem; It's About Res Ipsa loquitur

Res Ipsa Loquitur
Latin for "the thing speaks for itself."

After inflation rose to a 39-year high this morning, pre-market futures cheered initially. The talking heads on some prominent financial networks applauded Jay Powell for having "won, yet again," with the implication being The Fed is not, in fact, way behind the inflation curve of tightening and is appropriately positioned. 

Here at Market Chess, we have bigger fish to fry than pursuing low rent ad hominem attacks, and certainly never with a malicious intent at that. Instead, we simply try to gauge prevailing sentiment versus our view to extract a better market posture going forward. 

And when we do, it still seems apparent that those arguing that inflation has peaked are operating out of hope more than anything else. Simply put, as the estimable Dan Niles noted on CNBC this morning, interest rates should probably be at 7% by now, which certainly suggests that Powell and The Fed are laughably behind the curve with the current Federal Funds rate at 25 basis points and QE still in effect even with tapering. 

Looking out to 2022, the presumption is that inflation will only become more of an issue. Case in point: We have yet to see the sorts of extreme behavioral adjustments we always see during inflation cycles (ephemeral or not, such as summer 2008), like people carpooling to work who normally would not, or extreme hoarding of, say, groceries (toilet paper was last year, come on now). Until we start to see mainstream news headlines of that, I do not think we are even close to inflation having run its course. 

Recall how adamant we were in recent months that inflation was not, in fact, transitory. After another hot CPI number this morning, The Fed is running out of time as we head into the FOMC next week before it simply must end QE and pull forward its rate hike timetable. While many are arguing those factors are already priced in, the IWM and many growth stocks flashing red this morning as I write this would be a contrary argument. 

Ultimately, my argument is the complete opposite of those who submit a newly-hawkish Fed is priced into markets--The market has barely even scratched the surface of its consequences and ramifications. 

You'll know it when you see it. 

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