TECH - Weekly Points – 5 Things To Know In Investing This Week | Benzinga
The Pivot Issue
For two years, Wall Street pundits and asset gatherers have been screaming for the Fed to pivot to lower interest rates. Unsurprisingly, they make more money when asset prices are high. They were doing this even as the CPI was approaching double digits and when real inflation was approaching 20%. This week, Fed Chairman, Jerome Powell, changed his tune and delivered a dovish message. The CPI is trending down led by lower energy prices. Consumers continue to spend like crazy. A year ago, the soft-landing crowd sounded crazy. Now, it’s a real possibility.
This week, we’ll address the following topics:
- The Powell pivot. This week he delivered a different message. It’s different this time? Yes, it is.
- The CPI: Still too high, but it is coming down.
- Retail sales: up from a slow start and indicating a strong Christmas.
- Nvidia (NASDAQ: NVDA) moving production out of Taiwan. Good move despite Taiwan having the best fab plants in the world.
- Barron’s calls for a higher neutral rate. We think they’re right. Don’t know what the neutral rate is? No worries. Explaining is what the 5 Things is here to do.
Ready for a new week featuring the long-awaited pivot? Let’s dive in:
1) Powell Changes His Tune:
For the last two years, DKI has been correctly critical of the asset gatherers who make more money when the Federal Reserve blows up asset bubbles with too-low interest rates. Even last year, with inflation raging these people screamed for the Fed to "pivot” to lower rates. DKI has spent the last two years saying inflation is too high, rates were too low, there will eventually be a pivot, but for now, Powell means it when he says "higher for longer”. This week, Powell gave a speech with a completely different tone. It’s clear that the Fed is done with interest rate hikes this cycle. Fed projections for the end of 2024 went from a net decrease of .25% in the fed funds rate to a .75% decrease.
I know I said "higher for longer” two weeks ago, but WAIT!
DKI Takeaway: Some are arguing that the Fed has overtightened and the US is now going to experience a massive recession. DKI suggests that a 5.3% fed funds rate is sensible and that it’s really the decade and a half of zero and near-zero interest rates that created the problem. I further suggest that regardless of what the Fed does, Congressional overspending is going to lead to massive future inflation. Their view and my view no longer matter. The "pivot” is here. The most significant part of Powell’s speech was he made it clear the Fed would consider reducing the fed funds rate even before the CPI came down to 2%. ...