My Prediction? Pain.

Inverse Funds

Market momentum is negative heading into the close on Friday. This is the part of the conversation where I tell you that I’m moving to cash on my primary trading accounts and will start using inverse funds. 

My inner Clubber Lang from Rocky III is predicting some short-term pain next week. 

The Fed is set to meet on Tuesday, and on Wednesday – there should be some clue into where interest rates and tapering are heading in the next 18 months. The Fed is supposed to start tapering as soon as late November. But the central bank will still be pouring cash into the markets. It currently pumps about $120 billion into the market per month. 

Tapering? Well, maybe they go to $110 in December. To put that in perspective, it’s still well above the $80 billion from the height of the QE cycle over the previous decade. But there are some pretty challenging things that the Fed must deal with. The recent GDP reading of 2% for the third quarter is a disaster. 

Remember, there was chatter about the reopening of the economy. I expected 10% growth during my initial forecasts in March. But the acceleration of the supply chain crisis and market incentives paralyzed our exports. 

The Fed is dealing with inflation at 30-year highs, but GDP growth that might go into negative territory after the retail holiday season. And while everyone wants to compare this to the 1970s, I warn them – again – that the combination of factors hammering this economy is unprecedented. 

Economists love to look for patterns and compare it to previous history. That habit is why we are in the situation we face right now. There was nothing really comparable to the economic conditions of the 1930s before the 1930s. There was nothing like the economic conditions of the 1970s before the 1970s. 

The same goes to the financial distress of 2008 – where the housing market collapsed. The housing market was among the safest asset classes in the history of capitalism. Yet, we’re trying to pretend that there is precedent to our technologically advanced system and its supply chains of today. 

There is not. And because of that, we’re using playbooks from 2008 and 1981 to try to fix today. Huge mistake. I think the Fed recognizes now just how out of whack things have become, and I think sobriety and honesty are due in the near future. It might not come on Wednesday, but the reality of the situation has hit everyone. 

We’re going to be very cautious next week. Maybe I’ll be wrong, and the market never goes down ever again. But – at some point – we’re going to all be Clubber. This can’t continue forever. The good news is that we have inverse funds to help us protect our capital and hedging strategies to protect our gains of the last decade. I’ll talk more about them next week.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

Related Articles

the fed

Demand Destruction

Momentum is Red. Markets remain under pressure after Quad Witching. Markets remain very choppy after a day of wild swings and traders taking profits off

Read More »
the fed

Demand Destruction

Momentum is Red. Markets remain under pressure after Quad Witching. Markets remain very choppy after a day of wild swings and traders taking profits off

Read More »