Will the Fed Crash the Stock Market or the Dollar?I occasionally listen to Doug Casey and David Stockman. Recently I got an email from them with the above question. After a relatively short spiel from the two of them they want you to subscribe to their service for $199 / year. They promise to tell you the “top three trades for decisive profits”. I know they’ve been predicting the imminent collapse of the world financial system for years (maybe decades), but it does look like the Fed is now in a corner: raising rates will depress the stock market, but keeping them low will full inflation.
I’m curious what others think of this.
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They’re certainly trying to talk the market down with more hawkish comments, and are likely to become more assertive with interest rate increases in the next few meetings as they move, belatedly, to ramp down inflation.
Rising rates is good for the dollar, particularly because most countries offer lower rates and aren’t as ready to hike yet. Inflation is generally bad for the market, and the Fed tightening the money supply should depress the asset bubble we’ve been building through this free-money period over the past several years, which should be negative for most stocks and real estate.
Everyone really knows about these dynamics, so in theory the market should be able to adjust somewhat gradually — but investors are panicking about every hint along the way that might mean rapid rate increases, or alternatively mean that inflation has already peaked. Oh, and the war could get much worse, and the rest of the world could get much more involved, so really, nobody knows nothin.
Personally, I expect all of this to strengthen the dollar over the next few years… but you never know, sentiment can really turn on a dime.