The Dread Spinning From The Fed

What isn’t working:

Residential Mortgage rates are now at 6.10% according to Bankrate.com. They have recently jumped by the most in 35 years. The housing market is about to reverse course.

Bitcoin plunged through several closely watched price levels to the lowest since late 2020. The largest digital token by market value tumbled as much as 15% to $17,599 on Saturday, marking a record-breaking 12th consecutive daily decline, according to Bloomberg data. Ether fell as much as 19% to $881, the lowest since January 2021, over the weekend. The two bellwethers of the crypto market are both down more than 70% from all-time highs set in early November.

The DJIA is now down -17.75 year to date. The S&P 500 is down -22.90% and the NASDAQ is down -30.98%, for the same time period.

Any, and every, Bloomberg Bond Index is seriously in the red for the year and likely to fall further, in my estimation, as the Fed gallops into action to battle inflation.

The most accurate gauge of real inflation, in my view, is the average of the CPI Index and the PPI Index. This number now stands at 9.80% and is the line in the sand, in my opinion, for making or losing money.

The arguments rage about a forthcoming recession or not. Many economists and strategists are calling, hoping, for a “soft landing.” Everyone thinks that this is what the Fed is calling for whether for economic or political reasons. So here comes the shocker.

The Shocker:

(Bloomberg) An economic model maintained by Federal Reserve Bank of New York economists suggests the chance of achieving a “soft landing” for the US economy is just 10%. The NY Fed states, “According to the model, the probability of a soft landing – defined as four-quarter GDP growth staying positive over the next ten quarters – is only about 10%,” the economists wrote in a blog post published Friday on the bank’s website.

“Conversely, the chances of a hard landing – defined to include at least one quarter in the next ten in which four-quarter GDP growth dips below -1%, as occurred during the 1990 recession – are about 80%.”

In the post, the New York Fed economists noted that the “model forecast is not an official New York Fed forecast, but only an input to the Research staff’s overall forecasting process.”

You may take a moment and gag now.

With the average yield on money market funds, according to Crane Data, now at 0.6%, this cash equivalent now puts you at -9.2% to my average inflation number. Cash may make you feel better, but it is still a losing proposition, in my view.

Look, many of the strategies that worked in the past, are not working now or, in some cases, they are failing miserably. I have been on Wall Street for some 48 years and I have seen this before. Innovation is often the key, to winning, in the “Great Game.”

My methodology for dealing with all of this is my income strategy. I use very carefully selected exchange traded funds and notes, closed end funds, and 1 REIT, currently, and all of them pay monthly, bringing “compound interest” into play, if you reinvest part or all of the money each month. Each and every security now that I use, for this moment, yields at least 10%, which beats the average inflation rate.

Past performance, of course, does not guarantee future results, but that is what I can obtain as of today. Also, dividends can be raised or lowered, and some of the securities that I utilize have leverage, but not all of them.

Some that have Zero leverage still have double-digit yields that are quite attractive, over 10%+, in my viewpoint. Also a good number of the securities that I am currently using are “covered,” according to the Fidelity screening application that I utilize. No return of capital.

“Holmes and Watson are on a camping trip. In the middle of the night Holmes wakes up and gives Dr. Watson a nudge. “Watson” he says, “look up in the sky and tell me what you see.”

“I see millions of stars, Holmes,” says Watson.

“And what do you conclude from that, Watson?”

Watson thinks for a moment. “Well,” he says, “astronomically, it tells me that there are millions of galaxies and potentially billions of planets. Astrologically, I observe that Saturn is in Leo. Horologically, I deduce that the time is approximately a quarter past three. Meteorologically, I suspect that we will have a beautiful day tomorrow. Theologically, I see that God is all-powerful, and we are small and insignificant. Uh, what does it tell you, Holmes?”

“Watson, you idiot! Someone has stolen our tent!”

– The Adventures of Sherlock Holmes, Sir Arthur Conan Doyle

My conclusion. The Fed has stolen our tent. Now we must find shelter.

Original Source: Author

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.