Market Inflation Window

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Fed trader Chaim Siegel discusses the fundamental and technical bullish case (0:35). Perfect CPI numbers, Fed rate hikes, and the fight against inflation and bonds (4:00). Here’s a summary of a recent conversation with an investment professional. Podcasts.

Transcript

Lena Charville: Chaim SiegelThe listeners know you, you run Fed TraderA lot of times we’re talking about macro topics here.

you Talk about So early last year, or late last year, you were talking about this year, you were giving a bullish outlook with some caveats, but how do you feel about the market compared to how you felt before, and how do you feel about the market now?

Chaim Siegel: So, thank you so much for having me. It’s always an honor.

But I want to look back. I don’t do anything too fancy. I guess as a professional trader, I just watch the market go up and down. I keep things simple, based on some simple data and facts that I always follow. And sometimes I feel like the market is driven by the media and different news.

And I think there are a couple of components. Just to answer your question, there are a couple of components that help keep you sane and keep you from going crazy when following the market. One is fundamentals. The second is technicals. And under technicals, or maybe a category of its own, I call action.

So the fundamentals, are earnings going up? Is the economy doing well? That’s a whole other story. Is the Fed getting in the way? Or is the Fed just letting the economy go? That’s all called fundamentals, right?

And I think the fundamentals are good. The economy is good. The Fed is out of the way, so earnings are good.

I was bearish on 2022. I changed my mind at the end of 2022 ahead of a big market rally in 2023 and became bullish when I saw everyone worrying about a recession, but I wasn’t. It’s not because I’m a good prophet. I just like to look at the data and say what’s happening now, and I’m momentum-driven.

So I believe that whatever happens now, it could continue. I mean, I don’t think there’s a lot of better indicators than assessing what’s going on right now and whether it’s realistic. Employment at the end of 2022 was very strong. And I said, everybody was bearish and employment was good. I’m bullish. And the market had a good year.

And this year, I saw Geopolitical stuff and probably the Fed, mainly geopolitical stuff is one of the big headwinds. Potentially, that could cause some snags, but I think the underlying fundamentals are good and the Fed is not disturbing the market by not hiking rates, keeping rates on hold. They’re actually keeping rates lower, even though they’re not cutting rates. They think they’re cutting rates, but they’re not cutting rates.

So the fundamentals are bullish. technical And the action that basically measures how the stock price moves — how volatile the stock price is — is bullish.

So, when stocks are going up or down 0.5% or 1% every day, that’s bullish. If they’re fluctuating 3% or 5%, that’s bearish. And that’s a hint of an underlying trend from traders and investors that are pushing the market up. So, overall, I’m bullish and I think we could end the year bullish. There are other things I’m keeping an eye on, but for now it looks like it’s staying bullish.

RS: What else are you watching?

CS： So, Consumer Price Index The 0.3% figure was just released yesterday, which I think is a good number for the market because it won’t spook the Fed. inflationThat means the Fed cannot raise interest rates.

In other words, inflation is marketInflation is only bad if the Fed raises rates a lot, because when the Fed raises rates a lot, the market thinks, “Oh, you’ve got competition in the bond market, in the money market. You can get 5%, 6% or even more in the money market. Why should you invest in stocks? Money is going out of stocks and into money market instruments.”

So the Fed raising rates is bad for the market. But if the CPI is at 0.3%, inflation is going to happen, but the Fed is still going to cut rates and think inflation is going down. I think they’re wrong. I don’t think inflation is going down, but it will take 30 days to tell.

And I think because there is momentum, whatever the trend is, unless there is something big going against that trend, like physics, the trend is going to be the same. So, if the CPI is at 0.3%, that’s fine. Consumer Price Index It will remain at 0.3%.

The Fed says, “Housing prices should come down soon.” But the Fed is fighting inflation and has just said it is going to ease quantitative tightening. Quantitative tightening means that the Fed is going to reduce the amount of fixed income securities of any kind that it holds off its balance sheet. When the Fed shrinks its balance sheet, it means that it is buying less from the government in the open market, so to speak.

So what that means is that the government has a huge buyer that’s going to disappear from the market, and the disappearance of a huge buyer means price pressures in the market, so bonds and fixed income and any fixed income should be under pressure.

And, I(TLT) are issued daily and to subscribers, and TLT is falling. Quantitative tightening means that the Fed, the government agency that manipulates the bond market, is getting out of the market. Now, they are fighting inflation, but they have announced that they are tapering off quantitative tightening, which means they will buy more bonds in the market.

The big market actors, and the market manipulators, which I think is their natural purpose, as they come in to buy more bonds, they don’t want to reduce their portfolios too much, so as bonds in their portfolios mature, when you ease off quantitative tightening, they end up buying back more maturing securities, which means they’re in the market longer.

If they come on the market, it will support the prices of all these bonds. And by them supporting prices, I mean prices go up. Interest rates across the yield curve will generally be lower than they would otherwise be. And lower interest rates mean more growth. And more growth means more inflation.

So even if the Fed is saying, “No, we’re focused on fighting inflation,” I just can’t understand why they would delay quantitative tightening if they are fighting inflation. So I think the fact that they are delaying quantitative tightening means that they are letting inflation go.

I think inflation The word inflation obviously means prices are going up, and rising prices are good for the price of Bitcoin, good for stocks, good for everything in the supermarket, and generally means prices are all going up at the same time, so that’s good for the market.

So 0.3% inflation is good for the markets, but when the CPI goes to 0.4%, 0.5%, 0.6%, the Fed is going to say, “Oops, we’re getting inflation out of control,” and they’re going to start raising interest rates, and when they start raising interest rates, it’s going to doom the markets.

So if we’re in the 0.3% range, I think the market will be OK, but if the CPI jumps to 0.5% or 0.6%, I think that will be a big surprise for the market, especially since the Fed and the market believe that inflation is going to come down and that a rate cut will come.

So it takes time Federal Reserve Board And I’ve been telling my subscribers that they’re pivoting to neutral, but they’re still talking about cuts. And as long as we’re in an inflationary period, and as long as they’re still considering cuts, they’re going to make some moves, but each move will take months to get to the next pivot and the next pivot.

The next shift will be neutral, then the next shift will be a rate hike, and then they will actually hike rates, meaning we have six months before the Fed actually does anything.

So if inflation is rising because the Fed is tapering off quantitative tightening and stimulating the economy, then in six months the Fed may be forced to cut rates. I think inflation may start to rise again or continue to rise, which would force the Fed to cut rates and hurt the market.

But in this intermediate stage and window, we have the headlights in front of us before they actually change posture, and before they change posture and actually change that posture, the market has a window of inflation, which is good for stocks as well as all prices.

RS: Very good. Chime, thanks for the conversation as always. If you want to know more, Fed Trader On Seeking Alpha.