5-Chart Friday (3/19/21)

By Charlie Bilello

19 Mar 2021

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5 charts from the past week that tell an interesting story in markets and investing…

1) Higher Growth + Higher Inflation = Easy Money?

The Federal Reserve updated their projections at this week’s FOMC meeting with a substantial move higher in anticipated real GDP Growth (6.5% in 2021) and inflation (2.4% in 2021).

Historically, such expectations would have always been accompanied by a tightening in policy, but that was the past. Today the prevailing view is that there are no negative consequences to easy money – the more, the better (if that sounds familiar, it’s because the same prevailing view applies to national debt).

As such, the Fed is planning on keeping interest rates at 0% through 2023 and continuing to add to its balance sheet at a rate of at least $120 billion per month.

Key to their sanguine view of no downside to easy money is the belief that inflation expectations are “well anchored at 2%,” which chairman Powell reiterated at the FOMC Press Conference.

Meanwhile, the bond market continues to be at odds with this view, with inflation expectations hitting 2.59% this week, their highest level since 2008.

Additionally, longer-term bond yields over which the Fed has less control and tend to be highly correlated with inflation expectations, continue to move higher (30-Year at 2.5%, 10-Year at 1.74%).

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The rise in yields has led to one of the larger corrections in US bonds that we’ve seen over the past 25 years, now at 4%.

2) A Billboard for Bitcoin

The Fed’s endless dovishness coupled with the surge in National Debt continues to be a boon for Bitcoin, which saw new highs once again this week crossing above $61,000 for the first time (it entered the year at less than $30,000).

3) From All Bad News to All Good News

What a difference a year makes. A year ago, the Volatility Index ($VIX) closed at an all-time high, and all news was bad news.

This is what a chart of the Volatility Index ($VIX) looked at the time…

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This week, the $VIX moved back below its long-term average (19.50) for the first time since the pandemic began, and good news is all around.

That good news has pushed the Dow to 15 new highs this year, crossing above 33,000 this week for the first time.

4) More SPACs Than Ever Before

Speaking of record highs, SPACs have already surpassed the previous record high issuance from 2020, and it’s only March.

$89.7 billion has been issued across 276 SPACs so far this year.

With free money on the table and sky-high investor demand, athletes and other celebrities continue to jump on the bandwagon…

5) The Reopening of America

The covid-19 trends in the US continue to move in the right direction, with hospitalizations and deaths moving lower.

23% of the US population has now been vaccinated (75 million Americans), with 2.5 million shots per day over the past week.

With herd immunity now in sight, the reopening of America has begun. Airline travel is set to explode higher, with pent up demand like never before and the consumer flush with cash.

And that’s it for this week. Thanks for reading.

Have a great weekend everyone!


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