MIND
comes to investing these days. All this financial engineering has effectively created an artificial market – or a virtual reality – for investors.
THE END OF RATIONALITY But here’s the reality... Despite having experienced the shortest (albeit deepest) recession in modern times from February through April of 2020, we’re printing massive amounts of money as though we’re still in the midst of recession. Combined with fiscal stimulus from lawmakers, we’ve landed ourselves in the middle of a huge liquidity infusion, the likes of which we’ve never quite seen. In fact, an estimated 22% of all U.S. dollars in circulation were printed in 2020 (wow!)... And 2021 shows no signs of slowing down the printing presses. It doesn’t pay to be logical when the Federal Reserve has turned the Making matters worse, the money printing comes after more than a decade of record-low interest rates... And the current rounds of stimulus, including $120 billion per month in bond buying, are designed to help keep those interest rates low. After all, if the Fed creates this demand buying up bonds itself, interest rates will stay low – hence the 1.3% yield on the 10-year bond. It’s no wonder why we’re now seeing inflation... and mass appeal in risky cryptos and meme stocks. It’s as though folks feel like they have money to burn. Investors are so far out on the risk curve that they’re throwing almost all caution to the wind. There’s no rationality when it markets into a kind of DisneyWorld playland.
After all, why be rational? Why ask the tough questions surrounding actual valuations of companies? It seems the rational folks are the ones punished the most in this crazy environment. It doesn’t pay to be logical when the Federal Reserve has turned the markets into a kind of Disney World playland. The question now is... when does the ride stop? And can the economy and markets survive without the help of the Fed’s stimulus? These are the issues the Fed and investors must grapple with two weeks from now at the Fed’s annual shindig in Jackson Hole, Wyoming. THE CANNES FILM FESTIVAL FORWONKS Since 1982, the Federal Reserve Bank of Kansas City’s Economic Policy Symposium in Jackson Hole, Wyoming has been the go-to event for economic professionals, investors, academics, government representatives, and members of the media. Think of it as the elite Cannes Film Festival... for wonks. From August 26 to 28, amid the stunning backdrop of the Grand Tetons, the Fed’s governors will communicate their message subtly (and not) to the event’s participants. The subsequent headlines will make their way into
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