Chart of the Day - twin peaks.
This week I was fortunate to host two podcasts with people I have known for a long time & for whom I have a lot of respect. They each bring a very unique view for how to navigate markets, especially difficult markets. They each can cut right to the heart of what is most important to determine on both the reward side of investing & on the risk side of investing. After all, every investment has a reward & a risk & it is our job to weigh our options comparing each. Each of
these, in separate conversations, referred to the idea of twin peaks.

The twin peaks that they referred to that the market needs to see before investors of any asset will feel comfortable to take risk are the peaks in Fed Funds rate (in blue) & the peak in inflation (in white). We have seen this playing out over the course of the summer & so it
should not come as a surprise to us.

I use the SPX Index in orange as the proxy for the risky mkt. You can see that the market
bottomed over the summer when the expectation for Fed hikes (in purple - hikes over next 1 yr) was falling. This coincided with the peak in inflation on a year over year basis back in June. This gave rise to the discussion of a Fed pivot & the bond mkt started to price rate CUTS
into the 2023 curve. Stocks liked this. We rallied 20% from the lows. However, what caused this rally to stall?

The stall came from the Fed commentary, after both the July FOMC but also during the Jackson Hole Symposium, that the Fed is not done. There is no peak in Fed Funds.
We see the purple line start to move back higher & stocks sell off. Then we get the tick higher in CPI this week - not large from 8.1 to 8.3 - and the bond mkt realizes even further that the Fed is not done. 1.5 more hikes are priced into the Fed Funds. Stocks have a big move
lower on Tuesday & have continued.

You see, for a bottom to be in, a necessary pre-condition, perhaps not the only condition, is for us to see the twin peaks - the peaks in inflation & the peak in Fed Funds i.e. for the Fed to at least pause. Until then, we are in a volatile mkt with a downward bias.

Since it is the weekend & we are discussing peaks I thought I would end by passing on some other advice. As you watch your favorite sports this weekend, consider perhaps Four Peaks, a terrific beer brewed out in Tempe, AZ. If beer is not your thing, there is Six Peaks winery which makes a nice Pinot in Hillsboro, OR. Finally, for those in the intl audience, that want something different, try Eight Peaks (Hakkaisan), a lighter style junmai sake that comes from the Hakkai Mountains in Niigata, Japan. Even as you enjoy, remember to ...

Stay Vigilant

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