In today's YIYL we take a look at how macroeconomic factors continue to affect investment strategies and as a result the price of assets. Inflation is all that's on people's minds lately, we see it in the price of energy or the price of food and the ordinary man is not happy.
These are your voters, and that's why the governments of the world want central banks to try and stem the extent of inflation. We're seeing record high inflation in every country and with the US being the biggest, deepest, and most liquid market, seeing it hit with high inflation rates is a concern for everyone.
The more the US has to tweak its monetary policy, the more the rest of the world has to take the pain too, since we're all dependent on dollars in some way, shape, or form.
You can't always destroy inflation with interest rates
Popular opinion states that you can curb inflation with interest rates, but this doesn't come without a cost. The fact is you have to raise interest rates to a point where jobs are lost and businesses close, to drive down demand. You have to slow down the economy and have people destitute for some time.
The truth of this inflation is this isn't solely due to currency inflation but through poor policies driven by currency inflation. We've hamstrung or destroyed energy production and as a result, you're living in a world of temporary scarcity.
Since it takes years to bring online, more energy, more food, and more jobs that create real goods and services you have more money chasing less goods and services.
When it comes to certain goods you might get away with it, but when it comes to commodities, you're not going to get away with it, because people need food and energy.
The fed is fed up
As the fed continues to raise interest rates, we've seen prices of assets trend downward from previous all-time highs. We've seen the Fed at its most hawkish in years and in the latest speech by Powell he reiterated his commitment to tackling inflation.
After that speech, we saw the US stock market trim down by $1.2 trillion and the dollar continues to strengthen as people want to hide out in dollars.
The more stocks tank, the more the wealth effect decreases, people feel poor so they spend less. The more stocks tank, the less confidence people have to invest meaning less capital floating around in markets.
As stocks tank
The more stocks tank, the more these businesses have to lay off jobs, and trim their operations. They will also have a lower income as people cannot access credit as cheaply as before and you'll see the slow down over the next year.
The layoffs will be the first big result of tackling inflation and I am sure more businesses will be cutting jobs, especially in the tech sector.
Since the Fed is committed to getting their CPI back to 2% annually, we'll see how long they can keep pushing before something breaks and they have to pivot. As long as they're fighting inflation you're going to see prices of investment assets trend down, of that I have no doubt.
The ones with the lowest dividends, cash flow, or based on growth will be hit the hardest and then value stocks.
Have your say
What do you good people of HIVE think?
So have at it my Jessies! If you don't have something to comment, "I am a Jessie."
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