EC A Visit From The Doom Squad

There have been some hints of it—Atlanta Fed President Raphael Bostic has said that tapering might be an option at some point. So far, the market has mostly ignored it.

As to whether the Fed will ever sell assets off the balance sheet, the answer to that is: probably never. It’ll let the bonds mature and reinvest the proceeds.

In order for the balance sheet to shrink over time, it would have to not reinvest the proceeds. The last time that happened, it was a little bumpy in the market.

One of the five surprises for 2021 I listed at the beginning of the year was that the Fed might start moving in a more hawkish direction prematurely.

That is a real risk. In fact, it is really the only risk, because people correctly point out that the economy will recover strongly in the second half, once most of the vaccines have been distributed.

But this is a market phenomenon, not an economic phenomenon. If we learned anything from 2020, the stock market is not the economy.

For clues as to when this might happen, keep an eye on repurchase agreement (repo) rates. And keep an even closer eye on your weekly 10th Man issues. I'll help you understand what's happening, as it happens.

Make no mistake: The bubble is real. We haven't even scratched the surface of how crazy things are about to get.

But if you're following my lead—cashing out of the stocks that are in the most danger and being more selective than ever with what you buy—there's nothing to fear.

In fact, I think you'll agree there's a lot to look forward to.

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William K. 1 month ago Member's comment

Unfortunately it is not obvious that "But this is a market phenomenon, not an economic phenomenon. If we learned anything from 2020, the stock market is not the economy." To quote the author. And so while certainly some action is needed on the part of the fed I have no illusion that the correct action will be picked, or that it will be understood that the stock market really IS NOT the economy.