In the pursuit of curbing price inflation Fed Chair Powell will be willing to break some glass…
- Speculative asset classes such as crypto, rare automobiles, fine art: YES. This has already happened to a degree, especially as it relates to crypto currencies and publicly-traded companies that have exposure to crypto such as Coinbase (COIN). There is much more blood to be shed, particularly in crypto.
- Risk Assets / Equities: YES. We believe Powell is willing to further break equity valuations in his pursuit of taming inflation. Highly-valued Technology stocks in particular have much further to fall. We believe the NASDAQ Composite will see 9,000 for a bottom.
- Housing: YES. We believe Powell will continue to let the air out of the housing bubble. Perhaps not to the extent of 2009 when you could not give high-end houses away in markets like San Diego and Rancho Santa Fe, but the housing market is only slightly bruised, not bloodied. We have seen new listings in the $5-7 million range drop 20% after only 1 month on the market here in the Northeast.
- Credit Markets: NO. Powell is a former Private Equity executive and he won’t allow the credit markets to break. In other words, Powell will come to the rescue before credit markets malfunction as they did in 2009 and April 2020. Keep an eye on High Yield spreads to this end.
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