Jesse Felder: The Fed NEEDS more Unemployment to Win Over Inflation
Tom welcomes back Jesse Felder. Jessie is the founder, editor, and publisher of The Felder Report.
Jesse discusses the various reasons people get involved in markets, and why it’s not always money.
It’s remarkable how well financial magazine covers like Bloomberg tend to signal a reversal. Recently, Bloomberg posted a cover with the unstoppable dollar, that aged well. These types of indicator are indicative of extremes.
The rising dollar is driven by hawkish Fed policy, raising rates over a short-term period. The market has priced in smaller hikes over the next few months. The Fed may surprise to the dovish side due to a deteriorating economy.
The Fed has trained the markets to expect them to come running to the rescue. Now they seem to have flipped to the opposite policy. The markets also know that the Fed can’t afford another massive asset price bust. Jay Powell can’t do what Paul Volcker did without creating a debt spiral.
A strong dollar, higher interest rates, and surging oil prices is a clear leading indicator that a recession is coming.
With the Fed printing a lot of new money recently, bond markets have become divorced from reality. Economic factors should drive bond prices, but supply and demand dynamics for bonds is becoming problematic. The debt has become so large that perhaps bonds no longer serve the role they once did.
He explains why the number of passive investors makes for incredible possibilities for value investors.
Jesse believes the commodity markets will continue to outperform for a considerable period. Sectors that have been starved of capital are likely to outperform in coming years.
Most investors have completely lost interest in the mining sector and gold. He shows an interesting chart of where gold prices could head from here based on past performance. Gold is quite cheap relative to the price of oil.
Be diversified and hedge your bets because we are in unprecedented times.
Time Stamp References:
0:00 – Introduction
0:46 – History Vs. Human Nature
4:00 – Dollar Euphoria & Sentiment
8:35 – Dollar Path Forward
15:50 – Fed Policy & Inflation
22:42 – PPI Chart & Recession
25:00 – Rate Hikes
27:07 – Bond Vigilantes
31:03 – Mortgage Applications
34:06 – Cycles & Value Investing
38:49 – Resource Underinvestment
44:15 – Gold Sector Outlook
47:40 – Gold Vs. Oil Ratio
48:20 – Gold Vs. Stocks
52:35 – Dollar Sentiment Shift?
55:05 – Debt Challenges & MMT
57:56 – Debt Spiral Risk
59:19 – Wrap Up
Talking Points From This Episode
- Sentiment and the alternate reasons why investors get involved in markets.
- The Fed has trained investor’s to believe they will always intervene.
- Distortions in the bond markets have broken economic reality.
- Why value investing has great potential.
Guest Links:
Twitter: https://twitter.com/jessefelder
Website: https://thefelderreport.com/
Jesse Felder is the Founder, Editor, and Publisher of The Felder Report. He began his professional career at Bear, Stearns & Co. and later co-founded a multi-billion-dollar hedge fund firm headquartered in Santa Monica, California. Since moving to Bend, Oregon in 2000 and founding The Felder Report shortly thereafter, his writing and research have been featured in major publications and websites like The Wall Street Journal, Barron’s, Yahoo!Finance, Business Insider, RealVision, Investing.com, and more. Jesse also hosts and produces the Superinvestors and the Art of Worldly Wisdom podcast.