By: Steve Smith
Next week, the Central Bankers who control the world financial system will gather with other elites in Jackson Hole, WY to basically decide the course of humanity.
The tension and hyperbole is palpable. But mostly overblown.
The Jackson Hole Economic Symposium started in 1980 and was mostly a low key event, focused more on trout fishing than clout phishing. But around 2010, it took on outsized meaning as people tried to read the tea leaves of the rhetoric of how they would repair the still gaping wounds of the financial crisis.
For more than a decade, the Central Bankers have bequeathed their largesse to owners of assets; stocks, bonds, real estate and those that manage those assets. I think that is about to change.
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Jerome Powell became head of the Fed in 2018 and immediately promised to normalize rates. For normal people who felt maintaining a zero rate, crisis-based monetary policy was a huge folly. However, after two rate hikes stocks underwent a ‘taper tantrum’ and Powell lost his spine. He caved and reversed by cutting rates.
This time around I hope he will remain steadfast and get rates back to normalized levels. Regardless of how inflation plays out over the next 6-12 months, he can use that as cover for his concern to not ‘fall behind the curve’ again.
Within my hope I think many market participants are underestimating and misplacing the notion the Fed will quickly the impact a rising rate environment will have on a large swath of stocks.
Many of the highfliers from 2021 crashed down some 80-90%, but have recently enjoyed an impulse bounce of 25%-50%, mostly due to short covering. It is time to start looking at shorting some of these names again.
Options360 just established a bearish position in Roku (ROKU) with a limited risk bear put spread. We always defines our risk before the trade is even initiated.
Jackson Hole is very likely to see Jerome Powell quash the “delusional” idea of a 2023 Fed pivot by focusing very much on the threat from entrenched inflation expectations.
If the Fed does dig in its heels we should see stocks roll back over and give back most of the recent gains. Options360 is starting to position for this scenario through Ishares Nasdaq 100 (QQQ) ETF.