We Didn't Start The Fire
We Didn't Start The Fire
The Fed did and nobody is safe.
Tomorrow is Federal Funds Rate day. It’s like Christmas for traders, or Halloween, depending on how you look at it.
The markets are expecting a 50bps. hike but if history repeats itself then this could get ugly this year, real quick.
Back in 94’ there was an emergency hike from Uncle Alan Greenspan where throughout the year rates were hiked 0.25%. Then after that hike the Fed opted for a 0.50% increase, another 50% and then a 0.75% increase to 5.5%.
It got as high as 6% by February 1995 then they cut six months later.
Can an emergency hike happen? Who knows, it might be viable given the rate of inflation.
That 1994 series of hikes killed bond markets (super boring I know - but it matters eventually).
Bonds are getting killed now and I think they continue to do so, from a technical perspective. I’m nowhere near smart enough to understand any of those markets like that.
But I am aware of what that damage does to liquidity at large and that lack of it creates volatility in equities markets.
The markets expect a .75% hike in June and another in July. But these characters could get on the gas quicker than that or hike higher than that and that means nobody is safe.
Not even Tiger Global or Cathie Wood for that matter.
Not the Time for Buy & Hold
In my opinion this is not the time for buy and hold on really much of anything. That’s good for vol traders like me bad for financial advisors who have to field calls from their clients telling them it’s a “10 year plan”.
It can be good for you as well if you understand and accept the environment we are in and are headed into.
After all, this isn’t a Cool Hand Luke situation; We don’t have a failure to communicate, in fact we have the opposite - the Fed has told you what they’re doing and history has shown they’ll get aggressive with these hikes when they need too.
How you act on that is entirely up to you.
Volatility is here and these wide ranges are as well. Trading higher volatility names like Rivian (Implied vol at 118%) and $FANG plays are an options traders heaven.
The same goes for futures right now.
I made a video on Rivian explaining a bit of that vol dynamic that it might still have left in it.
But don’t expect the same moves we saw in the ponzi names that we saw from 2000-2022 - this is not the year for it.
This article is presented for informational purposes only, is an opinion, and is not intended to recommend any investment, and is not an offer to sell or the solicitation of an offer to purchase an interest in any current or future investments. Any such solicitation of an offer to purchase interest will be made by a definitive private placement memorandum or other offering documents.
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