Fed’s Third Act Yet to Come
10 June 2022
With volatility continuing to whipsaw the market, CEO Jan van Eck has discussed with Michael Batnick and Downtown Josh Brown the path forward. The discussion centered around three key points Jan made in his investment outlook:
- The Federal Reserve (Fed) would reduce and eliminate stimulus policies, a dynamic that is playing out in markets today as the so-called “Fed put” is over.
- Even after their recent run, the commodities rally remains in its early innings and reflects the beginning of a new commodity super cycle.
- While subject to periods of significant volatility, crypto represents a long-term, transformational investment opportunity.
The End of the “Fed Put” Has One More Act
In addition to extremely low rates, the Fed supported capital markets with asset purchases in the bond market. On 1 June, the Fed will start to reduce its $8.5T balance sheet, as it will no longer reinvest proceeds of $30B in maturing Treasury securities and $17.5B in maturing agency mortgage-backed securities per month. Expect more volatility as the market adjusts to this new dynamic.
A New Commodity Super Cycle Begins
Ignore the head fake of surging commodity prices. High inflation is being caused by forces that were in place long before Russia’s invasion of Ukraine. Even if the impact of Russia’s invasion of Ukraine starts to wane, we expect commodity prices to remain at record highs given the fundamental disconnect of the market. The transition in the commodities space is a multi-year trend that is just getting started.
Crypto’s Disruption of the Financial System Is Here to Stay
Despite recent volatility in the crypto space, we believe acceptance of stablecoins will grow dramatically (especially in emerging markets), driven by applications such as NFT-enabled ticketing, gaming and social messaging, and importantly, physical goods and services. The decentralized finance (DeFi) ecosystem is maturing and becoming a potential competitor to legacy financial intermediaries and global investment banks. As tech prices continue to correct, we believe there will be good buying opportunities in tech and crypto.
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