The Creeping Inflation?

No one was expecting much from the Federal Reserve this past week. Rates weren’t predicted to rise and no one was expecting a start to tapering. Instead the entire process of ‘tightening’ monetary policy looks to have finally started — with a long awaited market correction. It certainly didn’t work that way immediately after the FOMC (Federal open Market Meeting) on Wednesday. The Feds “dots” suggested that the first rate hikes would occur in 2023, that there would be two of them, and that most of the governors agreed with that view. That was a change for a central bank that had been promising to remain on hold until the job market had mostly recovered and inflation remained persistently above 2%. After ‘all that’… the markets took all the news in stride. On Thursday disappointing jobless claims report kicked off the downward tumble. Fed Chairman Jerome Powell seemed fairly certain that the job market would recover quickly enough to justify the new rate hike, and that the Fed wouldn’t have a problem getting people employed and managing inflation. However the jobless claims seemed to suggest that maybe that won’t happen. The two-year Treasury yield spiked while the 10-year yield fell, suggesting that rate hikes might outpace growth, a negative thought for a market that had been assuming the Fed would let the economy run ‘hot.’ Then Friday St. Louis Fed Chairman, James Bullard started talking…He said the Fed has started discussing ‘tapering,’ and would meet its inflation goals this year, or next. “Bullard made it clear the process has started,” says Ironsides Macroeconomics’ Barry Knapp. “He didn’t leave any doubt.” The market apparently agreed. The S&P 500 fell 1.3% to 4166, this past week, its worst since February, while the Dow Jones Industrial Average dropped 1,189 points or 3.4% to 33,290, its worst week since October 2020. The Small Cap Russell slumped 4.2% (smaller companies, and a good barometer) to 2237, its worst since October. The resilient Nasdaq Composite finished lower to 14,030, down 0.92%. Its strong techs were again it’s stalwarts in a confusing market.

U.S. Regulators have Bitcoin in their Crosshairs! A wave of cybercrime has placed cryptocurrencies on watch. The strongest argument against cryptocurrencies used to be that they had yet to show they were much good for most anything…now the strongest argument against them may be that “they have become far too good at one thing: enabling crime,” as quoted in the Wall Street Journal. Soon after the first of the private digital currencies, bitcoin launched in 2009, crooks recognized its appeal. While law enforcement is proving increasingly adept at tracking bitcoin transactions, and at times seizing stolen monies, the ability to make digital payments without financial intermediaries has facilitated much illicit activity, such as the selling of illegal goods and services online and laundering money. In a 2019 paper, researchers Sean Foloy, Jonathan Karlsen and Talis Putnins estimated that 46% of bitcoin transactions conducted between January 2009 and April 2017 were for illegal activity. A rash of recent ransomware attacks, where cybercriminals lock up a victim networks’ files and demand monstrous payments for their release, most often in bitcoin, has raised the threat level on digital currencies’ crime problem. An attack last month on Colonial Pipeline shut down a critical East Coast gasoline pipeline; another, on JBS, halted operations this month at some of the largest meat plants in the U.S. The FBI was able to seize a good portion of cryptocurrency ( at least $2 million, about half the amount paid) that Colonial Pipeline paid to ransomware gang Darkside, but because the gang is believed to operate in Russia, its members might be beyond reach. In a recent interview with the Wall Street Journal, Federal Bureau of Investigation Director Christorphor Wray compared the difficulties posed by the recent spate of ransomware with the challenge posed by the Sept. 11, 2001 terrorist attacks. But the biggest risk to cryptocurrency may be that such regulatory efforts won’t be effective in curtailing the dangerous acts cryptocurrencies have helped enable.


Bryan Lee, chief investment officer Blue Zone Wealth Advisors. IBD “Today it makes sense to skew your portfolio slightly more into growth as a lot of the value trade has played out,” Mr. Lee said. He added, “The bond market is telling us that (Federal Reserve Chairperson) Jerome Powell and the Fed are right with inflation and that it will be transitory.” But if the 10-year Treasury yield tops 1.74% heading toward 2%, position yourself for value to outperform again, he says.

Federal Reserve Chairman Jerome Powell, after this past week’s rate-setting meeting. Barron’s “You can think of this meeting as the talking-about-talking-about tapering meeting, if you like. I now suggest we retire that term.”

R. Scott Siefers, wrote Thursday, (in Barron,s) “Banks will boost their dividends by roughly 7.6% from current levels and repurchase 6.4% of first quarter shares outstanding over the next 12 months. We see little risk of any banks failing the test, and the group has extraordinarily robust capital levels,” said Mr. Siefers. Investors are going to want something they can count on–and that is more certainty about dividends and buybacks.

Gregory Perdon, co-chief investment officer at private bank Arbuthnot Latham. WSJ “If the Fed tapers bond purchases and it raises rates, then all of a sudden the inflation dragon gets tamed.”

Luca Paolini, chief strategist at Pictet Asset Management. WSJ “When you have the combination of expensive valuations and changes in Fed policies, it is better to lock in gains.”