This week’s Alpha Trader podcast features hosts Aaron Task and Stephen Alpher talking about the Fed, interest rates, inflation, Bitcoin, and more with David Kelly, chief global strategist at JPMorgan Asset Management.
The FOMC meets this week, and while Kelly agrees with the consensus that there won’t be any policy moves, he believes the central bank - sooner, rather than later - is going to have to acknowledge that the economy has performed stronger than expected. Look for a few more “dots” to indicate that rate hikes are in play for 2023.
The resultant bond market tantrum might lead to some blow-ups, but Kelly isn’t too concerned, noting similar episodes in 2013 and 1994 didn’t deter (and in fact may have helped lengthen) long-term bull markets for stocks. Bottom line: The vaccine and reopening economy mean strong economic growth, the stimulus bill will provide a further boost, and the unemployment rate could see a 3%-handle before too long. That’s not the sort of environment where the real yield on the 10-year Treasury (TLT) should be negative.
“Cryptocurrencies are nonsense,” says Kelly, not buying the notion that just because there’s a finite amount of bitcoin (BTC-USD) means such a great value should be attributed to it. The real question, says Kelly, is whether there’s a use for it, and whether some aspiring entrepreneur could one day establish a legitimate competitor.
That said, Kelly does have serious issue with the “loss of discipline” among global central bankers, and worries it might end up leading to a great inflation. To hedge, he’d be a buyer of real estate and equities (value names, rather than growth), but not bitcoin.
There’s plenty more, including why the Fed has over-estimated the power of low interest rates, and how intellectual stasis in European central banking has left the Continent in far worse economic shape than the U.S.
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