Not everybody.
Although this interview was conducted before the last Fed meeting Mr. Bianco raises some points that will be operative for months to come.
From NZZ's The Market.ch, October 22:
For the first time since the outbreak of the pandemic, the Fed is scaling back its stimulus program. Jim Bianco, founder of Bianco Research, says what the tapering means for investors, why the Fed is likely to underestimate inflation, and why he expects the financial system to undergo a technological revolution.
...MUCH MOREThe countdown is on. At its upcoming meeting on November 3, the Federal Reserve will most likely give the go-ahead for the tapering of its asset purchases. It will be the first time since the outbreak of the pandemic that the world's most powerful central bank is scaling back its gargantuan stimulus program.
What does this mean for investors? «The Fed is showing a lot more flexibility, and the market is expecting that flexibility from them,» says Jim Bianco. Therefore, the founder and chief strategist at Chicago-based Bianco Research doesn't expect monetary policy to automatically tighten, as it was the case in the last cycle, which led to severe tremors at the end of 2018.
Nevertheless, he sees considerable risks. The main reason is that the narrative is shifting to the idea that inflation rates will remain high next year. Accordingly, the Fed could be forced to tighten interest rates much earlier than planned.
In this in-depth interview with The Market/NZZ, which has been edited and condensed for clarity, the influential market strategist discusses the fight in Washington over a new stimulus package and the consequences of the economic slowdown in China. He also explains why he advises to invest in growth stocks in an inflationary environment and why fintech and blockchain innovations could trigger a new revolution similar to the emergence of the Internet in the early Nineties.
Mr. Bianco, the stock market has recovered quickly from its setback. In the U.S., the S&P 500 closed at a new record high on Thursday. How do you assess the outlook for investors?
Typically, you will get about two 5% corrections a year. We had one back in March, and we’ve just had another one now. So far, even minor pullbacks have been a signal for traders to buy the dip during the pandemic. It looks like this dip, as has been the case with most, was very short-lived. To that aspect, if you look at it technically, the market hasn’t done anything, at least yet, that would get you more concerned.
Does this mean investors can sit back and look forward to further gains?
There is a narrative that is more worrisome, and it’s around inflation: The «transitory» debate is starting to shift to more persistent. As we’ve seen with the CPI data last week, the current year-over-year rate of inflation is 5.4% on the headline number and 4% on the core number. That is elevated, and it should come down. However, the more persistent non-reopening and acyclical components continue to trend higher. For instance, owners' equivalent rent or how much an owner of a property would have to pay to rent it, just recorded its largest monthly gain since June 2006. That’s leading to the idea that next year the rate of inflation might only come down to a high 2% or maybe a low 3% number - and that’s too high for the Fed....
****
...All indications are that the Federal Reserve will soon start to taper its gigantic asset purchases. How well will the stock market digest this?
They stated that they are going to taper because the job market has made «substantial further progress». So they are going to probably reduce the bond purchases of $120 billion a month by $15 billion a month. Accordingly, they will be down to about zero on purchases by mid-year 2022. But here’s the thing: The market is starting to price in two rate hikes before the end of 2022. Why? Because inflation will probably stay uncomfortably high and push the Fed towards raising rates in the second half of next year. Given all that, I’m not surprised that there is this increasing concern that inflation is not as transitory as the Fed thinks....
