A Comment -- General Comments From an Expert (A Commentary)

Inflation. A couple of years ago, Fed was worried there wasn't enough inflation. Fed hasn't been unhappy with asset inflation. Liquidity push has led to higher prices in stock and real estate markets. Cost push inflation is of more concern to everyday people, and Fed is more sensitive to that. Supply chains should start to improve. Inflationary scare will start to diminish. Next 12-18 months, we'll regress to 2-3% core inflation levels.

Market can advance even if valuation multiples compress. Balancing act. We like stocks to go up and make money, but as the price of anything rises its value tends to drop. We've seen advancing prices in the markets, but also very strong corporate earnings. In 2021 we saw the S&P in the high 20% range, but valuations dropped because we saw a 45% rise in corporate profits. He expects another good year where we get good returns in the market, but valuations don't get stretched because corporate profits keep pace.

TSLA vs. traditional car makers. Market is recognizing value in GM and Ford. From an investment standpoint, there's more risk in TSLA. For example, GM's valuation is 6.5 enterprise value to EBITDA, whereas TSLA is about 95. TSLA has done a fabulous job, but you have to marry the fundamentals with the price you pay. TSLA is overvalued. He's gone with mainstream companies with a lot of potential, rather than momentum investing.

Inflation analysis. See the article "Death, taxes, and inflation" on his company's blog.

Bullish on USD. US equities now represent 43% of the global MCSI. US market keeps on going up, huge compounded returns. Still the reserve currency of the world. Expects it to perform very well, and especially if we get any whiff of deflation in the coming months and years, it only goes higher.

Challenges to the market. Tries to model Covid and look for the macro view that will dovetail with all the other macro views out there. So many things going on that impact individual stocks, markets, and industries. Everything seems to be in flux, including this week's data. Intermediate- to long-term models are going back and forth. The market's trying to get a sense of where 2022 is going to go.

Is tapering wise? No. He's a deflationist. Inflation is transitory. Lots of stuff going on in the price of oil and other commodities. There's scarcity and bottlenecks. Biggest fear is deflation, not inflation, and this will play out in 2022.

Any particular names and sectors? He's a value manager, and that's hard these days. He's done very well, especially in the US with his long-term holds. Tries to find pockets of value in industries. Even though valuations seem crazy, you try to find value in the market. He's not trying to beat the index. His firm owes a fiduciary duty to clients and hopes that their choices are reflected in the rates of return.

Choices for you portfolio. What you should be looking for are names with these characteristics: S&P 500, USD, upside in their model price, value, good quality, and nice dividend.

Should today's sell-off hit MSFT tech stocks as well as Peloton tech stocks? You have to distinguish between those two classes, but the sell-off open a buying opportunity. Investors will seek profitable growth as the economy slows down. Today's hawkish Fed comments will grow more out of step with reality as the year unfolds. The Fed should have already hiked rates sooner. Buy value and cyclicals, like financials and energy. Stay there until the market digests this. In the second half of 2022, the market will start to slow and there may be opportunities to buy the better tech names.

The U.S. 10-year yield rising Unlikely the 10-year will reach 2.25% to 2.5% in the next 6-12 months is unlikely, because the market is still digesting the really low terminal federal funds rate.

Fed's hawkish comments today sink stocks The Fed has done some things very well, like Powell convincing markets that the Fed won't crush the market. But Powell has poorly called the economy, like keeping its foot on the gas pedal as the economy was reopening and soaring. Now, as supply chain issue arise and ISM numbers dip globally, NOW they want to raise rates at the wrong time. So, now the market will price in how aggressive the Fed will be and whether they will induce a recession. Today's trade was a repositioning, but it wasn't disorderly. Be short bonds and avoid high-PE stocks, and buy boring defensives until things settle.

Hawkish Fed today and Omicron The Fed is saying about Omicron: damn the torpedoes and full speed ahead. The markets have and should look beyond the variants. It may not be pleasant for the market, but what the Fed is doing is what needs to be done.