It had been a while since our last update in December 2021 and we would like to get in touch with the reality in 2022.
What has been going on in 2022?
Top US banks are projecting the Fed rate to reach at least 2.5% by the end of 2022.
The current FED rate range is between 0.25-0.5% and the mortgage rates have surged to 4.67%. What's gonna happen to the mortgage rate when the FED rate range is at least 2.5%? I think the mortgage rate will be above 6% when the FED rate is at least 2.5% and this will be very taxing on homeowners.
Consequently, investors had increased their short positions in March 2022 because of worsening economic conditions.
There is a strong correlation between the technology stock market and central bank liquidity. The QE had been boosting the technology market but the tide would change when quantitative tapering (QT) was implemented. The US FED is projected to reduce its US$9T assets by 50% which is likely to begin in the 2nd half of 2022. Can you imagine what will happen to the technology stocks when the QT starts?
Last but not least, the EU has stated that it will begin its QT in Q3 2022. Therefore, it is getting likely that the financial crisis will happen in the 2nd half of 2022.
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4 comments:
Wouldn't it be everytime Fed stagnant the interest rate or start reducing the rate, then the market start going into recession? As it take times to brew out the home owner backup cashpile holding to drain out.
It would seem to me is early 2024 the real financial criss kick in.
Good to reading your analysis, any view from your side?
The QT (Asset Sales) has a much bigger impact than the Fed hikes. The last QT took 46 months to complete and the outcome was bad.
The FED wants to complete the QT in a much shorter time during an economic slowdown this time. I really don't see how this will end up well. Rate hikes and asset sales during an economic slowdown are perfect recipes for a financial crisis. With all these in mind, the financial markets will react first. The financial market won't wait for the QT to complete before crashing.
What you had observed about the market movement with the rate reduction was because the fed was ahead of the curve and the FED had to reverse its action just when the market was going to fall. However, the FED is behind the curve this time and it will have to hike rates aggressively before the mid-term election in Nov 2022.
If Biden were to lose the mid-term election, there would be uncertainty in the market and investors would react negatively because Biden would become a crippled president.
I hope GOP wins back 1 or both bodies of Congress.
Historically US stocks do great when Congress and the President are deadlocked.
Like I commented back in Feb 2021, we're in the middle of a secular bull that can still run till the late 2020s.
Since that comment, S&P500 has risen 17%.
There will be a recession in 2023 or 2024, but it will be a relatively mild one. Similar to the one in 1990, early 1991.
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