Seven months ago I published the article: Will You Buy the Dip? I concluded:
Whether it’s this year, the next, or some time beyond, there will be an event, such as the return of COVID, WW3, the next Lehman Brothers, anything really, to blame for the next stock market crash. Eventually, the Fed will find a reason to officially re-enter the market.
Telling readers (free of charge):
They will not say it’s for the purpose of saving the stock market. They’ll use words like liquidity crisis, or cite the necessity of a smooth and functioning market. When this happens, the Fed will justify expanding its balance sheet once again. This article does not constitute investment advice, but this is the kind of dip the author is preparing to buy, backed by the full faith and credit of the United States Government and its central bank.
That was on March 25, 2022. The article corresponded with the high of the Toronto Stock Exchange and only a few months after the high of the Dow Jones, which occurred around the start of the year. The world will perpetually change, but my outlook has not; I’m still waiting to Buy the Dip.
With the 10-year minus 3-month yield curve turning negative just last week, Ryan McMaken recently published an article about this. It seems likely that a recession is on the horizon, even though we may have already been in a formal recession for some time.
On mainstream outlets, talk of the Fed Pivot is finally getting more airtime; it’s funny to see mainstream economists starting to think along the same lines. Of course, the Pivot should not be a cause for celebration or jubilation where the world will become a better place. Everything will not be awesome again; quite the contrary.
Just last week, CNBC ran the headline:
Fed will pivot soon after ‘tremendous’ progress on inflation, says Wharton’s Jeremy Siegel
The pivot will happen. It may start slowly with a pause on rate hikes as well as a pause on balance sheet reduction. Or the pause could be skipped entirely and the Fed will go for an immediate rate reduction and balance sheet expansion. Regardless of how long it takes and the method the Fed uses, eventually, after some financial crisis, the Fed will start buying assets again. If prices are still elevated, then the Fedspeak will follow the reaction, being a narrative such as fighting a recession with inflation, or picking between the lesser of two evils, recession or higher prices.
The easy money path means money will become cheap again, and interest rates should start to go down, as long as the Fed buys enough bonds. Recall that in 2020 the Fed apparently saved the world by creating $5 trillion. The next time they step in, we can expect to see a lot more money creation. Maybe $8 trillion, maybe $10 trillion? All we can do is speculate, but speculate is what we must do!
Again, this article does not constitute investment advice. But I’ll continue waiting for the Fed to formally re-enter the market. When they do, I intend to buy everything I can get my hands on. The future with the Fed is fixed, and the bet is that this next round of multi-trillion stimulus will push all prices up, as it always has and will continue to do.
