QE or not QE
and that smell, do you smell that smell?
I had got the following questions in from a subscriber:
It seems like Powell is growing a pair and focusing on inflation. Good right?
What do turbulent times look like? How best does an investor prepare?
Yes, I believe it is a good thing that Powell is focused on bringing down inflation. I’m very happy about the increase in interest rates. It finally pays to be a saver again!
Prior to 2008, savers actually got paid interest by banks for savings accounts. Certificates of deposits were legitimate investment vehicles. Powell is going to make saving great again. This is important from an Austrian economic position as savings is the foundation of the economy.
Now what do turbulent times look like? They look like this past week. The major market indexes whipsawed back-and-forth. Crude lost $11/barrel. Gold picked up $100 an ounce, silver $2/oz. Meanwhile 3 banks failed and another is in hot water (First Republic). All in one week. Now that’s some volatility!
The best way to prepare for this kind of turbulence is to prepare your mind. The worst thing to do here is sell it all or blow up your account trying to trade options. Have a game plan when your portfolio holdings go down. The mediocre thing to do is to hold on and wait it out. The pros, though, they are buying.
In his 1986 Chairman's letter, Warren said that it is wise for investors to be “fearful when others are greedy, and greedy when others are fearful.” Right now it looks like others are fearful.
The fear permeating the market is coming from the bank failures. Market speculators are unsure if the measures that the Fed announced are QE or not-QE and also if they are enough to prevent more chaos. If what the Fed did was stealth QE then the pivot is coming. I dont think that’s what this is and neither did Danielle DiMartino Booth.
Her whole chain of replies nails that the Fed's bailout is actually an injection of liquidity for bank to bank lending to cover existing deposits. That means this is not QE. Yes the Fed's balance sheet expanded but it was not due to the purchase of bonds or mortgage backed securities. That would have been QE. It expanded because of discount window borrowing and loans to “depository institutions”. These actions pave the way for the Fed to continue to raise interest rates without breaking the banking industry and forcing the pivot.
Earlier this week I thought that due to the banking panic that there would be some regional banks that might be worth my time but as the week progressed, Mr. Market discounted all my holdings. I would much rather spend my money buying up companies I already know are a great deal than spend time trying to find a good deal.
Another subscriber asked about my portfolio and when certain companies would show gains and if it was still ok to buy them. It is always risky putting a time frame on when a certain event is going to happen but I think there are some clues that can guide us towards a probable time frame.