2021 Fourth Quarter Commentary

With one daughter off at college, studying illustration the next three years in England, and another daughter who began her graduate studies in public health, in Paris, my son remains at home, on the cusp of finishing high school….

My dependents have become less dependent.  In contrast to my kids, the investment markets’ price levels are generally the highest in history and cry out for continued support from the U.S. Federal Reserve and the world’s other central banks.  Government spending, tax cuts, wealth are all dependent upon the central bank’s support.

The Fed is buying U.S. government debt at a rate of $120 billion in bonds per month, which depresses interest rates, stimulates credit and supports prices in asset markets.  So many young people can’t afford the high price of a new home even though mortgage rates are low.

The Fed’s economic modeling anticipates inflation running above 3% through the end of 2024.  In financial history, after the Fed’s creation, rising inflation and reversals of easy, excessive credit have preceded stock market declines.

Since 2008, each time the Federal Reserve has reduced its bond purchases, markets have stumbled.  Will inflation, global economic imbalances and supply bottlenecks trip up this market?  Wealth has certainly inflated.

What about those left behind?  Read Fiona Hill’s recently released memoir There Is Nothing For You Here for thoughts about that issue.

These days the Fed’s Chairman Jerome Powell hints at gradual action, hesitantly calming investors’ worries about whether the Fed might reduce its bond purchases, too much, too early -- those kids have too much anxiety to move out.