Professor Glenn A. Okun
The Rabid Capitalist: The Big Point is a brief summary of a detailed note available to paid subscribers.
John Maynard Keynes has been cited for stating that markets can stay irrational longer than you can stay solvent. The corollary, which Kevin Warsh is about to learn, is that bond markets can stay hawkish longer than a new Fed chair can pretend to be dovish. We should expect the incoming Warsh Fed to pivot toward a more hawkish stance, at best, deferring cuts and, at worst, raising rates incrementally.
A hawkish Fed will create a rich set of investment opportunities across asset classes. Curves that have steepened on fiscal and term-premium fears can flatten as the front end reprices higher. Financials, energy, and quality value stocks can appreciate. Credit spreads that have not yet caught up to the rates story can finally disperse. The right portfolio response to the bond market mess is not to brace for impact. It is to position for the very pivot the bond market is already demanding.
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