In his latest FOMC presser, Powell threw a bone to both Doves and Hawks to chew on, but since Hawks are already net short and sitting on large piles of cash, there is not much more deleveraging to expect. The asymmetry in positioning allowed Doves to take control of the narrative and run with it, considering their record cash pile. Current market positioning is setting up for a rally as Hedge-Fund chase returns in the bid to end the year flat.

The present market structure is one tough cookie to crack, presenting many moving parts for investors to consider. Bonds are pricing in a recession, but the Fed Dot Plot is still pricing in a more hawkish rate path. The variance between these two expectations is the source of much volatility in risk assets as market pricing shifts according to incoming data. The caveat remains that inflation will be hard to tame as Central Banks can’t print molecules. The only effective way for an institution such as the Fed is through demand destruction into US Mid-Terms, which is highly unlikely given the economy remains a political tool. We foresee outperformance in our assets through amplified volatility, continually misconstrued for downtrends and rebounds. But the general trend if invested in Real-Assets will be an uncomfortable path upwards over the next decade.

In this regard, only Absolute Returns matter. Note the volatility in Gold during the repricing years due to the Weimar Republic policies. We are not suggesting the current economic trajectory is anything reminiscent of that period, but the fact that the high volatility will make any mark-to-market tracking of returns on an annual basis almost impossible. Keep an eye on the prize.