Two charts that might define the Fed’s Jerome Powell era

FF Wiley/Daniel Nevins/12-13-2017

“According to our beliefs about how investment markets work, the up and down phases of asset cycles are closely connected. Also, monetary stimulus influences both phases at the same time. It helped fuel the giant gains of recent expansions, but it also helped create the imbalances that led to giant losses. And after the accelerated advances of 2016-17, it’s fair to wonder if today’s imbalances are approaching the extremes of 2000 and 2007. Even some FOMC members are gently acknowledging that risk.” – Daniel Nevins, FF Wiley

MK note:  Richard Russell, who before he passed away ranked among the most widely read and admired American newsletter writers, used to occasionally remind his readers that trees did not grow to the sky.  Investors are almost always caught by surprise at the severity of the downsides once a bull market turns to the negative.

Simultaneously, we haven’t seen much follow-up to the implicit warnings about “financial imbalances” issued by FOMC in minutes made public at the end of November.  That in itself was an implicit warning about market cycles. (We mention the Fed meeting minutes in the December issue of News & Views.)

Along comes FF Wiley’s Daniel Nevins to emphasize those concerns raised by the Fed.  He also offers some interesting speculation as to what may preoccupy the beginning years of Jerome Powell’s tenure at the Federal Reserve. Financial imbalances, he says, not a recession will be the major concern.  In that respect his reading of the future is in keeping with our own – a prognosis, by the way, that should encourage a gold diversification among those who share it.

The charts mentioned in the headline illustrate a point well made. . . .

 

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