On US Federal Reserve’s taper and interest rates
The real test of whether the pickup in inflation
will prove transitory or not will only be decided in the second half of the year, which is why the US Fed has not felt compelled to address tapering issues more directly at this week’s FOMC meeting. The decline in market-driven inflation
expectations in recent weeks, as with the job data, has reduced the near-term pressure on the Fed, which is why the most “newsworthy” development of this week’s FOMC meeting was that the Fed “dot plot” forecast now incorporates 50 basis points (bps) of tightening in 2023 as opposed to none previously.
What to make of the remarkable resilience of a stock market which is never cheap and certainly is not cheap now? GREED & fear will start to raise the Overweight in India in the relative-return portfolio back to where it was at the end of last quarter. The Indian overweight will be increased by 2 percentage points (ppts) to 14 per cent. Any marked pull back in India’s quality private sector banks is a buying opportunity for those who missed the explosive rally in banks from the lows reached in late March 2020.
On crude oil
This is the commodity most geared to the re-opening trade as the vaccine rollout proceeds. A further rise in the oil price to, say, $80 a barrel or higher is also likely to intensify the inflation scare which has already commenced.
Sector & stock preference
Investors should stick with the pro-cyclical commodity trade, particularly energy. If GREED & fear had to favour one area of the cyclical trade the most, it would be oil stocks.
The oil price remains GREED & fear’s best guess for the catalyst really to escalate the already commenced inflation scare – just as oil was the trigger for the stagflation scares of 1974 and 1979. Investors need to be prepared for the biggest inflation scare since the early 1980s.
On Crypto currency
If it is really true that it is possible to get 100x leverage on crypto assets in some jurisdictions, even GREED & fear would have to admit that some prudential regulation is warranted. Certainly GREED & fear would not advise owning crypto on leverage.
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