Taps Coogan – July 19th, 2023

The rally in stocks this year, primarily big tech stocks, is breaking the number one rule of investing in the post-Global Financial Crisis (GFC) world: central bank liquidity is all that matters. Via Isabelnet:

Perhaps we’ve finally exited the post-GFC liquidity regime, but color me skeptical.

Monetary policy acts with lags, as do yield curve inversions. Everyone ‘knows’ that and yet somehow the absence of a recession within 12 months of the 10 year-3 month inversion last October is being held out as an ‘all clear’ signal for the economy. Similarly, despite the fastest drop in headline CPI outside a severe recession in 80 years, and despite the fact that much of the impact of the Fed’s tightening has not yet been fully transmitted to the economy, the Fed is likely to hike rates yet again next week and guide towards at least one more rate hike later this year. That seems like a policy mistake to yours truly, even if it may take a while for that to become more obvious.