Powell To Bring The Pain
Ignore the economy to understand the Fed. Stocks are all you need.
Dear readers,
Confused why the Fed continues to hike? Surprised? Don’t be. While the Fed carries two official mandates, maximum employment and price stability, its creeping third mandate—stock prices—will always win out. High inflation and high unemployment affects mom and pop, but stock prices affect the rich and powerful—when choosing between which to support, do you really think the Fed is more interested in helping the public than the powerful?
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Bring the pain
Andy Constan is one of our favorite analysts. He operates with a fiduciary mindset and has been all over the “higher for longer” theme since he was our first guest lecturer almost a year ago. We’re sticking with Andy here as the investor that has been least knocked off center thesis—our own analysis anticipated that such a degree of disinflation would certainly slow and halt all tightening efforts. Bottom line: the Fed is not messing around.
Earlier this week, Andy reminded us that Powell wants pain. Given how unwavering Andy has been that rates will go, dared he say, higher-er for longer-er, the image of pain in a boxing ring hasn’t left me since reading his tweet:
A boxing match. Sparring. Punishment. A knockout. And lots of pain. What an image, and we thought it our duty to relay it to you, the reader.
In the following analysis, we take Andy’s pain analogy and specifically look at his choice of words for the Fed’s opponent in the ring: market. Yes, the Fed’s opponent is stocks—at the same time as the Fed must not decapitate equity investors, it takes advantage of a healthy, standing and with gloves raised, equity investor as signal to throw punches in the form of tightening.