HOW I SEE IT – by Bruce

Hiking should be over/Next bull market/ Feds alone. Every time the Feds speaks markets selloff -perhaps they should stop- years ago we didn’t need a play-by-play call of their actions. Opton expiry week – familiar pattern.

Positives: AAII investor sentiment survey - 24.3% bullish / 31.1% neutral / 44.6% bearish - bullish sentiment remains below its historical average of 37.5% for the 50th consecutive week (It will break out one day). RBC WM -Tom Porcelli - "The big issue that makes it hawkish is that the Feds forecast put the terminal rate at 5.1% for 2023 from 4.6% at the September meeting - for the record we think this hiking cycle should be over right now. The Fed is fighting yesterday’s war on inflation, we are building in 2 cuts for 2023, 3 cuts 2024 , 4 cuts in 2025, assuming 25 basis each. Brian Westbury -" Greatest headwind in 2023 should be lower profits. We expect next Bull market to be prolonged and strong but for the time being economy still needs to pay the price for massive artificial stimulus the 2020 to 2021 - part of this bill came due this year and the rest comes due in 2023." Professor J. Siegel -Fed making a terrible mistake - Inflation is over- Powell has been wrong - bulk of monetary policy has yet to be felt - Fed way too tight - no reason to go higher and keep rates high in 2023 -this will cause very steep recession - commodities, gas, housing, cargo, shipping, lumber, aluminum, and now rents are lower and Costco now says food prices are easing - Money supply, since March, has had the biggest drop since World War II, 85 years, and is slamming brakes on economy and stocks ( is this creating the set up for the next bull market -probably) - stocks should surge 15% next year after Fed realizes it’s won the war on inflation." Dr. Ed Yardeni-" FOMC sees rates headed higher for longer but a soft economic landing remains in the cards. Inflation peaked in June. Santa Claus rally should continue unless the Fed gets in the way ( they have now). The bubble in everything has burst without dire consequences so far. Surprisingly, it’s been a relatively smooth transition back to the old normal from the new normal. " Tom Lee.- on Tuesday –“ lagged CPI finally reality of rapidly falling inflation = less pressure on Fed = YE rally. We don’t think the Fed needs to increase rate 75 basis points. Market saying Fed might be done after December. " Jim Paulson. -" We don’t need Fed meetings , we’re not getting any more information and it’s creating a lot of volatility. Fed is lonely at the highest point of yield curve as everything is moving away from it. Fed is unsustainable and should be done soon and cut rates in 2023. The good news is , lots of things are easing, even though the Fed isn’t. Things like -Fiscal policy deficit as a percentage of GDP , US dollar, bond yields, mortgage spreads, junk bond spreads, commodity prices -all dropping. Companies are benefitting from lower commodity prices, lower capital costs and labor costs -all simulative affects . Consumer is seeing gas prices down ,real wages have increased after dropping for 1.5 years. Fed has made a mistake . lots of other stimulus out there in economy. “

Negatives: Fed – the volatility from each meeting - big issue that makes it hawkish is that the Feds forecast put the terminal rate at 5.1% for 2023 from 4.6% of September meeting. RBCWM- we could easily have a recession in to 2Q and 3Q- aggressive hiking cycle is going to cause some damage. Brian Westbury-" Fed downshifted to a smaller rate hike- isn’t close to done - path to fight inflation will bring volatility and short-term pain to financial markets. Expect markets will end year largely flat from where we are today. Economic medicine is bitter as part of price we paid for the policy mistakes made over the past few years.

Stocks this week: STZ, MI.UN, WSP, KO & ALA

Investment strategy: In a bear market, everyone loses, and the winner is the one who loses the least . Richard Russell.

 

Have a nice weekend. Bruce