Will the Government Rescue Us?

Dear Traders,

President Ronald Reagan once said that the “nine most terrifying words in the English language are: I’m from the Government, and I’m here to help.” I do not think any investors these days are really in agreement with that sentiment. Financial markets are blowing up everywhere in the world, and governments are stepping in to support them. Japan has stepped into the markets to save the collapsing yen, and Europeans are scrambling to control and offset surging prices. Now, the UK central bank is stepping in to purchase bonds to support pension funds. However, as we see other countries save their markets, there is little evidence that the Biden administration or the Federal Reserve plan to slow the dollar’s surge or stabilize the markets, even as it squeezes other economies globally, as Alan Crawford wrote in Bloomberg Businessweek.

The market took a dive again today and gave all of yesterday’s gains back. The jobless claims were lower than expected, showing that the labor market is still strong. Therefore, it provides more reasons for the Federal Reserve to continue to raise rates and slow down the economy to control inflation. Trading for me was very messy today, but I managed to get some profit from TQQQ. You can watch my “messy” recap here.

The 1913 Federal ReserveAct created the current Federal Reserve system, introduced a central bank to oversee US monetary policy, and gave it two mandates: price stability and maximum employment. When employment is strong, the Fed’s focus will be solely on price stability (meaning cooling inflation). The only tool they have? Increasing interest rates and putting pressure on business and people to lower spending. And as JPow said himself, it will be painful for some households and businesses.

That is why the bond market has collapsed almost 50%, the stock market is down deep in the range of 30% depending on which index you look at, and the future seems gloomy.

What do you think?

I will be in Vegas this weekend (until Monday). If anyone is interested in getting together for a meetup, please sign up here. We most likely will meet for some socializing on Sunday at 6pm in the Encore Lobby Bar at Wynn Las Vegas (details in sign-up link above).

To your success,
Andrew