Trillions in stimulus..with no end in sight

In Macro Analysis it's crucial to understand the policy framework.

An example of sound macroeconomics goals could be:

• Support growth at around 3% while preserving macro stability

• Keep government debt on a sound and sustainable path

• Target inflation to stay below 2%

• Reduce fiscal deficit and debt to X% of GDP

Current US macroeconomics actions instead in my opinion could be summed up as the following:

• Support growth at all costs

• Let inflation run hot

• Be fiscally irresponsible

• Weaken the US $

I am aware that the above sounds almost evil

I don't believe those in charge of policy do not see the dangers in what the framework currently is; I have to believe that they decide to ignore them and also have little to no choice but to continue down this absurd path.

I know it’s not going to end well however I am not going to pretend to know the timing of it and I am not interested in venturing in a guess. What I do know I that the trend is already developing and we can position our investments to take advantage of it or, at the very least, try to protect what we already have.

You have certainly heard the news in the last 12 or so months. Fed interventions, first in the Repo Markets, then in many other areas one the pandemic hit. Fiscal stimulus, elicopter money in the form of direct payments to individuals and businesses. First stimulus check for $1,200, now a second one for $600. Current discussion on a third package which will most definitely be passed in the next few months.

All of these actions support the four bullet points listed above. Bubbles have been developing everywhere in financial assets.

What is interesting and also logical is that the Bond market (the biggest financial asset bubble of all in my opinion - more on this topic to come), has been sniffing the potential for inflation and rates on the 10yr have already started to creep up. The FOMC already controls the short end of the curve (setting of Federal Funds rate currently effectively at 0%) and I wouldn't be surprised if they will have to stop in and start controlling the long end as well. See, a higher 10yr interest rate puts a brake on borrowing, especially in categories that are closely tied to it such real estate.