03-01-2021, 04:58 PM
The end game is a 2% inflation target and full employment, as that is what the Fed shoots for. Highly unlikely that either target is met in 2021, given current circumstances. Monetary policy will remain accommodative in the near-term, because deflation is a greater risk than inflation at the moment. The $1.9 Trillion stimulus being passed now is probably the last round of stimulus marketed as such. Defense bills and all of the other "must pass" legislation that gets passed annually, despite Congressional theatrics, will continue to be passed and not be labeled as "stimulus" by the press.
Personally, I am not a fan of gold as an investment or inflation hedge (I side with Buffett on that one). I prefer equities and real estate. They both tend to inflate alongside money, and are more liquid.
Treasuries are not currently a meaningful investment class for retail investors, in my opinion. If I was holding any, I would sell (top of a ~40year secular bull market in bonds seems like a decent time to unload). Since 2008, the buying of treasuries by the Fed from the Treasury has become the primary vehicle for carrying out economic and industrial policy in the face of a (mostly) gridlocked Congress over that period. In the absence of any legislative work that directs or influences economic activity (like infrastructure spending), the Fed is left to use modern monetary theory to carry out its mission of seeking full employment with a 2% inflation target. Buying treasuries to control the yield curve is the hammer that they have to achieve that objective, so everything looks like a nail. The Fed will continue to pursue its objective, even if it means negative real rates in the bond market. That said, I don't see them expanding QE further or explicitly making rates negative given where we are now, so the bond market is probably at its top.
If you want to know what happens next, my best guess is something like 2012-2016, when the recovery from the 2008 financial crisis got underway in earnest. The market will have short-term taper tantrums in response to any easing of QE or interest rate rises, but underlying economic growth from the recovery will keep equities moving up and to the right.
It could be years until the next bear market. Some unforeseen event (like COVID) could easily upset the applecart, but it doesn't look like there is anything on the horizon right now that spells trouble for the economy. This is the "green shoots" stage, as rapid vaccine rollout has us on a trajectory to normalizing by this Summer in the U.S.
Personally, I am not a fan of gold as an investment or inflation hedge (I side with Buffett on that one). I prefer equities and real estate. They both tend to inflate alongside money, and are more liquid.
Treasuries are not currently a meaningful investment class for retail investors, in my opinion. If I was holding any, I would sell (top of a ~40year secular bull market in bonds seems like a decent time to unload). Since 2008, the buying of treasuries by the Fed from the Treasury has become the primary vehicle for carrying out economic and industrial policy in the face of a (mostly) gridlocked Congress over that period. In the absence of any legislative work that directs or influences economic activity (like infrastructure spending), the Fed is left to use modern monetary theory to carry out its mission of seeking full employment with a 2% inflation target. Buying treasuries to control the yield curve is the hammer that they have to achieve that objective, so everything looks like a nail. The Fed will continue to pursue its objective, even if it means negative real rates in the bond market. That said, I don't see them expanding QE further or explicitly making rates negative given where we are now, so the bond market is probably at its top.
If you want to know what happens next, my best guess is something like 2012-2016, when the recovery from the 2008 financial crisis got underway in earnest. The market will have short-term taper tantrums in response to any easing of QE or interest rate rises, but underlying economic growth from the recovery will keep equities moving up and to the right.
It could be years until the next bear market. Some unforeseen event (like COVID) could easily upset the applecart, but it doesn't look like there is anything on the horizon right now that spells trouble for the economy. This is the "green shoots" stage, as rapid vaccine rollout has us on a trajectory to normalizing by this Summer in the U.S.