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The FED will be asked to defend risk on assets big time before Xmas (RTT Plus)
Created on: 5/14/2021 3:28:48 PM

the-fed-will-be-asked-to-defend-risk-on-assets-big-time-before-xmas-rtt-plusThe heat is going to be on the FED in the next 6 months.

The $64,000 question: Will the FED defend risk on assets by buying enough debt to suppress interest rates? 

POINT: The ROCK: Inflation is pressure on interest rates. The HARD PLACE: The US has huge and growing debt, they can not afford to pay the interest bill. The FED is caught between a ROCK and a HARDPLACE. The outcome is larger FED balance sheet and the release valve is a devaluation of the currency. A lower US dollar!


The FED said inflation is expected to be 'transitory', or in other words please do not sell your bonds, pretty please.

Many expect inflation to persist, of course this will force a bond bear market and higher interest rates, if the FED buys all the debt to keep 10 year interest rates under 2% their balance will explode and the US dollar will break below $88 on the DXY and risk on assets will shoot higher at rapid pace. This is Yield Curve Control (YCC). 

If the FED does not buy enough debt quickly enough the VIX will rally and stocks will sink. Of course with US Mid terms in 2022 and a democrat populated FED they will do all they can to defend risk on assets (in RTT view).

POINT: A sharp (say) 5% to 20% drop in the SP500 is on the table, and if the FED reacts quickly at recovery spike like March 2020 Covid 'v' reversal can be expected. If not, down we go!



Inflation is going to get hot as each months data rolls in over the next few months.


The CEOs reporting inflation pressures. 


CEOs




Producer Price Index forecasts hot CPI.


PPI





The hot inflation is sourced from energy (oil and gas), via Transport inflation (trains, cars and trucks). The blue line below.

POINT: If oil rolls over, then so shall inflation, with a lag.



COM





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