The Fed Is Well Positioned To Fight Off A Recession

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To investors,

There is a debate raging over whether the US economy is headed towards a recession or not. Investors and market commentators are watching unemployment, inflation, consumer spending, and various other metrics to predict any potential economic pain ahead.

I don’t think this is the right way to evaluate the market right now.

Regardless of whether the economy slows down or not, the Federal Reserve has positioned itself well to accelerate economic activity over the next 12-24 months. Interest rates are currently over 5% and the central bank was able to sell almost $2 trillion of assets off their balance sheet since 2022.

This means the Fed was able to restock their ammunition. When they are called back into the fight, we will watch the money printer get turned back on and a few hundred basis points of interest rates will disappear.

I explained this situation to Phil Rosen late last week:

The noteworthy aspect of financial markets at the moment is we are at or near all-time high prices in stocks, crypto, and gold. This has happened without the Fed stimulating the economy or asset prices.

Once the quantitative easing playbook is turned back on, we should expect asset prices to respond favorably.

Speaking of quantitative easing — the central bank has perfected this playbook since the Global Financial Crisis. I believe they are quicker today to cut interest rates and print money than they have been historically.

You saw this in 2020 when the Fed conducted two emergency rate cuts to bring the market to 0% rates. There was trillions of dollars printed via monetary and fiscal policy within weeks as well.

The combination of a central bank having numerous tools at its disposal, along with a faster response time in deploying those tools, means that a recession will have a harder time persisting.

And we should expect lower rates to lead to higher asset prices. History is largely undefeated on this point.

Cheaper capital is coming to the market. Which also means a portion of the approximately $6.4 trillion sitting in money market funds will likely want to find a new home in equities.

Whenever I hear a loud roar of investors talking about a recession, I start thinking the opposite is probably true. I would think the same if everyone was yelling that no recession is possible right now.

Real damage occurs when the market is caught offsides in either direction. The more people who think a recession is coming, the lower likelihood we will see that outcome.

The various trends and data points suggest asset prices should be higher 12 months from now. I wouldn’t want to be on Team Recession at the moment.

What do you think? Are you changing your portfolio at all? Feel free to respond to this email and I’ll do my best to respond to each of you.

Hope you all have a great day. I’ll talk to everyone tomorrow.

-Anthony Pompliano

Founder & CEO, Professional Capital Management

Daniel Batten is the Co-Founder and Managing Partner of CH4 Capital. Daniel is an ESG investor and believes bitcoin mining is one of the most important technologies when it comes to the environment.

In this conversation, we talk about what is holding back sovereign wealth funds from investing 1% of their assets into bitcoin, ESG decision making process, what it will take to educate them, and what the impact of sovereign wealth funds and countries will have.

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Daniel Batten Explains What Will Convince Sovereign Wealth Funds To Buy Bitcoin

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