The 4 Stations of Economic Environment (Business Cycle)
When Central Banks Hike Rates and Reduce (QT) their Balance Sheets they are trying to driven the Economy and Markets to a Deflationary Environment.
¿But this is Always true? 🤔
It's IMPORTANT to Understand the Big difference between a Deflationary Environment & Deflationary Event 👌
Let's see something Important to Understand Business Cycle (Short Term): REAL INTEREST RATES
REAL INTEREST RATES BEFORE 2020 (COVID)
When Real Interest Rates Drop from positive to negative, we can Expect a Deflationary Bust Event (Crisis)
When CASH & EQUIVALENTS are Unprofitable (Real Interest Rates Negative) Investors take more Risk: Like Investing in Equities - And example of this, is investing on Growth Sectors like Technology and Communications (YTD%)
Many Investors are waiting for a 'BIG CORRECTION' on Equity Markets, another 'Big Deflationary Event' like in the past, an they are not paying attention of what FED say: "We expect more Hike Rates in the future"...
Ye, they want back to a Positive Real Rates 😄
And for this, they maybe they will Hike Rates more than 6% this year
(Pretty Aggressive Position in the most High Debt Environment of US History)
GDP Growth & M2 Money Supply Growth
REMEMBER, KEYNESIAN ECONOMICS THEIR MAIN BELIEF IS THAT THE MONEY SUPPLY IS THEIR MAIN "TOOL" FOR ECONOMIC GROWTH KEYNASIANISM BELIEFS!
They will always tell us "Deflation is Bad"
We can't have Deflation of -100%, but we can have more than 100% Inflation (Hyperinflation)
SOON OR LATER THEY WILL BACK TO USE THEIR "MAIN TOOL" FOR "ECONOMIC GROWTH" 😄
It's not a "Free Market"
It's the FED Market!
This topic is much longer and more complex, but I'll leave it here 😂
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