Wacka-MOVE!
From ‘Transitory’ To ‘Illusionary’ Inflation!
Backdrop: Speculation
The US Fed and Treasury are actively suppressing bond volatility (MOVE) to prop up liquidity and equities, but this support looks unsustainable given persistent inflation and tightening fundamentals, leaving markets at best range-bound with significant downside risks.
We continue to see risk markets in the Speculation regime: the third quadrant of our asset allocation schema. Speculation features higher volatility and uncertain returns. It is typically characterised by firming economies; blazing commodity markets; late-cycle equity sector performance and a bearish flattening of yield curves. See chart:
It is a challenging time for new Fed Chair Kevin Warsh to take the helm, since Speculation is the hardest investment regime and transition to manage because it usually means higher policy interest rates. Of the previous Fed Chairs: Powell (2018-26); Bernanke (2006-14); Volcker (1979-87) and Burns (1970-78) all took office in the early cycle Rebound phase. Yellen (2014-18) began in a benign Calm liquidity regime and Greenspan (1987-2006) and Miller (1978-79) both took charge in Turbulence regimes.
