The lonely street of dreams

Happy Thursday!

I was driving my 4-year-old to school this week, and now that she’s past the age of those annoying toddler songs, I’ve been indoctrinating her to real music by slowly dripping the classics on her via Sirius’s Hair Nation and other trusted sources.

Just as we were about to pull into her school, Whitesnake’s seminal masterpiece Here I Go Again blessed our ears. Almost instinctively, my daughter smiled and began to rock out to it. But then she hit me with a question I wasn’t prepared for – she asked me what the lyrics meant.

To be completely honest, I had no idea. I almost never pay attention to lyrics. I guess I hear them but don’t listen (or the other way around).

Anyway, I googled the lyrics while we were in the car and couldn’t believe what I was reading. All this time, I had no idea the song was about being a contrarian investor. 

What a way to end Q1. Knowing that Coverdale and the gang align with my investment style makes me almost giddy. And speaking of being a contrarian, the chart below shows that the market is assigning an almost 80% probability of a rate hike in 2022. 

But this chart below shows that only four FOMC members expect a rate hike next year (green bar). This number has risen since December (blue square), but still nowhere near what could be viewed as 80%. Meaning, the herd thinks the Fed will be forced to raise interest rates sooner than they expect.

In situations like these, I like to remind investors about the chart below. I’ve written about this more than once. The short version is that the market is almost always wrong about what the Fed will do. I attached my most recent piece on this very subject that I wrote last May when this collective group of soothsayers believed that the Fed was going to take rates below zero (attached to this email).

The Whitesnake in me wants to take the other side on this one and say the market is overreacting. Remember the Fed has clearly stated they are putting employment ahead of inflation, so it would take a LOT of inflation to get them to revert back. 

Furthermore, the Fed will not raise rates while conducting QE (all that bond buying they are doing to keep rates low). If so, the central bank would probably need to announce tapering as soon as late this year to gradually reduce securities purchases. Given the Fed officials’ statements, that seems highly unlikely.

Lastly, if you are running low on reasons to hate California, I’ve got a doozy of a story for you right here. Apparently, top paid lifeguards in LA earned up to $392,000 in 2019. Not $3.92 or even $39,200. But almost enough to qualify for the highest federal income tax bracket (although some of this income is listed as benefits and “other”).

I also found this great interactive tool that shows where the 340,000+ state employees making over six figures are located. That’s a big chunk of the $45 billion annually of taxpayer money that’s going to state employees. The map is nationwide so feel free to spy on any of your neighbors that work for the government.

Enjoy the long weekend…