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The Fed Cures Bird Flu

**FED HIKES 75BPS, INITIATES QT, TARGETS FOOD INFLATION. FED CURES BIRD FLU, LIFTS FOOD EXPORT RESTRICTIONS IN FOREIGN COUNTRIES, SHIFTS WATER TABLE FROM FLOODED FARM AREAS TO DROUGHT AREAS, RELEASES WHEAT FROM STRATEGIC GRAIN RESERVE, INCREASES BABY FORMULA PRODUCTION.

**SLAUGHTERING FED’S JACKSON HOLE CATTLE “OFF THE TABLE FOR NOW” BUT WILL BE CONSIDERED IN CONJUNCTION WITH FURTHER RATE HIKES TO EASE BEEF PRICES

**FED “TO CONSIDER” FIXING GLOBAL SUPPLY CHAINS AT FUTURE MEETINGS BY LIFTING CHINA’S ZERO-COVID POLICY, RELEASING CHIPS FROM STRATEGIC SEMICONDUCTOR STOCKPILE, PROVIDING E&P COMPANIES FORGIVEABLE LOANS TO DRILL-BABY-DRILL

**FED “INVESTIGATING” RESOLVING RUSSIA-UKRAINE WAR

**FED DIPLOMATS TO VISIT TAIPEI TO EASE CHINA-TAIWAN TENSIONS

Jamie Dimon sees a hurricane coming for global markets. Goldman Sachs’ COO John Waldron believes this is among the most complex, dynamic environments he’s ever seen and “the confluence of the number of shocks to the system is unprecedented”. With these luminaries weighing in, obviously our tens of readers want to know what WE think. We are asked about the Fed and inflation quite a bit and for good reason. As we’ve written about before, easy monetary policy with endless liquidity stoked fires in areas like crypto and meme stonks. The momentum eventually spilled into a hot housing and auto market, which the Fed can address with tightening. Unfortunately, we must remember that $JPOW can’t do everything. If the Fed is as all powerful as the vitriolic financial press says, why can’t our fake headlines become real? Sure, the freewheeling, risk-taking, liquidity flooded, post-COVID world was too much and demand clearly outstripped supply across the world, but there was always hope supply could come roaring back to ease inflationary pressures. Alas, we were fooled again, but I’m pretty sure low interest rates and QE didn’t cause China to essentially shut down during Omicron and Russia to wage war on Ukraine. Inflation is the topic of the day, but supply chains have been the topic of the past several years culminating in large European conglomerates buying thousands of dishwashers and stripping them for semiconductors!

On top of the supply chain crisis, we now have a full-blown land war in Europe, a food security crisis and an energy crisis. The Fed is powerless to cure these inflationary ills. The Fed can increase the cost of and decrease the availability of money which can cool surging housing prices…and the availability of AI-powered refi loans for used cars…and maybe pop the crypto bubble. Unfortunately, demand destruction and rapidly shifting consumer behavior on the back of $6 gas will likely handle the rest of the inflationary pressures. Target for example has issued two profit warnings in the past month as it is unable to move its home durables inventory. Perhaps instead of slashing prices to attract consumers, Target should sell the washers to our auto industry to be stripped for chips! I’m only half kidding. Anyway, the global economy is changing rapidly. Call it an economic recession or a profits recession or whatever you like, but change is coming.

If the war in Ukraine is bringing the political West closer together, the resulting food insecurity is tearing much of the world apart. The UN’s Food and Agriculture Organization presented to the G7 in May 2022 to highlight the significant food crisis of 2021 and that it “is in this dramatic context that we now face the war in Ukraine.” Russia and Ukraine account for over a tenth of calories traded each day, 30% of world wheat exports and 60% of sunflower oil. A tenth doesn’t sound like a lot, but 26 countries depend on Russia and/or Ukraine for more than half of their grains. To quote Howard Marks “Never forget the six-foot-tall man who drowned crossing the stream that was five feet deep on average.” Energy and food costs spiraling could change existing allegiances between countries. Compounding the war shortages, global harvests have been hampered by weather. The Fed raising rates has precisely zero impact on weather and war.

This is a long way of saying food and energy prices could strain the US and global consumer. The range of economic outcomes is wide but centered on “worse” than we thought six months ago. The Fed cannot have the back of the equity market while it fights inflation. Unfortunately, the Fed cannot cure many causes of today’s inflation. With the strain on the consumer wallet, potential wealth effect hits from crypto, equity and debt markets tumbling, a land war in Europe and continued supply chain chaos, Mr. Marks’ stream has become a raging river. 

As such, we lean on our process to float over the incredible uncertainty ahead. This is the type of market where former owners abandon individual securities or entire sectors by the river’s edge for fear of crossing. Should we find companies we are comfortable getting to the other side with, we have plenty of room in our boat.