The Fed controls one rate, the overnight Fed Funds rate; all other interest rates are determined by the market, which is under no obligation to follow the Fed’s action. It has chosen not to do so this time because economic data has been strong. That positive economic data also confirms that the Fed didn’t need to lower rates in the first place.
I was reminded of this fable last week as once again the pundits on Wall Street cry, “Recession!” or at least economic slowdown. As we have chronicled already, this incorrect call has been going on at least since the beginning of 2023. They will not admit that they are wrong, but will keep making the same call until it is finally right.
The market is blowing up this morning and the question is, why? The answer is the same as always: Reckless speculators borrowed too much money against the wrong asset. This time it is the yen carry trade. Periods like this are not fun, but for prudent investors they do create opportunities.
It is summertime in the markets, which historically means volume is lower and we get strange, nonsensical movements that most often correct themselves once the professionals return from summer vacation. Four years after the pandemic, we continue to move closer and closer to normal. What does that look like this summer?
In the post-pandemic world, thus far Iron Capital has been spot on in terms of economic forecasts, and that is saying something considering how incredibly wrong most of Wall Street has been. We try to do things differently here: We try to be correct, and that means we have to admit when we are wrong so that we know when it is time to change our minds.
