The May Reading List

Hi Everyone! Here's a slightly delayed version of the May Reading List. With exams and the long bank holiday weekend, I've been a bit behind, but no matter. I am now finished and the latest version of the reading list is below. Just as another pointer, there are a few books I've decided to re-read in June, and therefore there will be no June Reading List. This is simply to allow me to spend some time reading back important material and books which I'd like to pass over again. 

The Retreat of Western Liberalism - Edward Luce: 

This was an interesting read from Edward Luce and it is important to add a bit of context to do with the date of release of the book. Trump had just been elected, and the Brexit process had just started to begin. What this means is that the perspective of the book is somewhat troubled by mistaken predictions about the end of the world under Trump and other catastrophic events. With the benefit of hindsight, of course, this did not happen, but the view presented by Luce is not that different to what many expected at the time. 

This is an excellent history of the world order following the fall of the Berlin Wall and aptly sums up a number of issues. Another great thing about the book is the brevity - Luce goes through the key content rapidly and it took me probably only 2.5 hrs to read. After the heights of populism with Brexit and Trump, we can perhaps hope that there is a brighter future for a more expansive Western order once again, but make no mistake, with a new migrant crisis likely underway and resentment at the cost of living, I am convinced populism is about to make a comeback - and thus we must be ready to deal with the fallout. Read this one. It's well worth the short investment of time. 

Walking London's History: 2000 years in 15 Walks - Tim Potter: 

This was a gift I received for my birthday. I'm a big walker and anyone who has ever taken the liberty of visiting me in London will have undoubtedly received one of my fact-filled walking tours. This book has added 15 new walks and hundreds of interesting tidbits to my routes. No doubt, many of my close friends will be most excited to undertake some of these new manageable and fact-filled walks. 

Great book for walkers and a fantastic gift for Londoners who like walking. 

Boris Johnson: The Gambler - Tom Bower: 

Ok this is going to be one of those rare highly critical reviews from me. It's safe to say, I thought the way Bower handled this tricky topic was well structured, but the views expressed are utterly biased. Basically, the central message of the book is "don't blame Boris". Blame Stanley Johnson, his difficult childhood, blame Eton, blame Dominic Cummings, but don't blame Boris. Clearly, this is nonsensical. 

I actually listened to the audiobook version of this, and through most of the version I was quite content simply because it was an apt analysis of Boris' life and did not shy away from issues like Boris' particularly *ahem* unique love life. The coverage of his time as Mayor of London I thought was also balanced and well handled. But then, it is all ruined as we get to the saga of Brexit. Bower always portrays Boris as this man who is deeply struggling over whether he wants to be in or out, but the reality as we all know is that it was a self-centred attempt to win power which only fell apart due to a spat with Michael Gove. In the audiobook, the narrator actually says "Brussels" with such a level of contempt it is almost impossible to not laugh at the clearly biased nature of the recording. 

What would be interesting would be for an epilogue now we are heading toward a confidence vote. One wonders whether Bower would still be able to tell the same story of "don't blame Boris" now we have seen the utter ineptitude and law-breaking which has plagued Downing Street through the COVID-19 pandemic. Still, it is not right to criticise an author with hindsight, and Bower's chapters on the first phases of COVID-19 are actually incredibly informative and a perfectly good history, but since it was not in the public eye at the time, party gate is not covered, and any subsequent history of Boris Johnson will need to have such a coverage of those events in order to make it a full and complete biography. 

Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever - Robin Wigglesworth: 

Another slightly critical review here. I'm not going to lie, I was a little disappointed. Perhaps it's because I'm not new to finance and have been aware of the growing investment levels within index funds and therefore I just didn't learn a huge amount. It reminded me in many ways of Zuckerman's The Man Who Solved the Market but this just didn't have the same level of insights in my opinion. 

My other issue with this book is what I believe is the idolising of those behind the efficient market hypothesis and other finance "academic revolutions" such as the development of portfolio theory and the CAPM etc. I personally don't have much time for the efficient market hypothesis, but I do think there was an overemphasis here on the importance of academia to the real world of finance. 

I would also suggest that the potential risk behind indexification (might have coined a new term there...) was underplayed. Bogle himself was deeply concerned by the time of his death that the revolution he was involved with might have gone a little too far. 

Unfortunately, I didn't quite have time to finish the second volume of Gibbon, so that will have to wait until the next reading list. As already mentioned though, I'm taking a month of reading new stuff to revisit a few books from the past. The next reading list will be the July Reading list published around August 1st! 

The April Reading List

Who would've thought it? Another month gone and therefore another reading list! In April, I read a more concentrated range than I usually would. I started off with a very gripping tour throw Chernow's Hamilton, slowly read my way through the first volume of Gibbon's Decline and Fall of the Roman Empire, and then ended up reading three of Taleb's books. 

Next month, I promise the reading will be a bit more diverse! So for simplicity, I'm going to link all the Taleb's together, and give as brief an overview as I can for the history, but anyway... let's get started! 

The History of the Decline and Fall of the Roman Empire - Edward Gibbon:

Well, first things first, a history of the history. This book is largely considered one of the greatest histories of the period in context ever written. It is an ambitious project covering over a thousand years of history. This first volume follows the course from the time of Augustus (27BC-14AD as emperor) all the way up to Constantine (306-337AD). There can be no question that this is one of the greatest histories ever written, and was a favourite of Lincoln, Churchill and many other influential figures of the past. The six volumes were written from 1776-1788. The question is... can you stomach all 3500 pages?  

I could write pages on my highlights from just this first volume, but I am not going to do that. This is because I intend to read one volume of the history per month for the next 5 months to complete the history. Thus, each time I write in the reading lists I will simply focus on one or two topics of interest. 

For me, the most riveting parts of this book come from the discussions surrounding religion and the rise of Christianity. I think Gibbon's take on early Christianity is very compelling and quite critical. It should be mentioned that Gibbon has a record for perhaps being quite anti-Christian, but the take was interesting on the general tolerance of the Roman people toward more religious freedoms, but the rise of Christianity eventually forced a more authoritarian series of governments (up until Constantine). The numbers Gibbon provides for the number of persecutions by Romans of Christians are surprisingly low - far lower than other persecutions which have happened historically, and thus we get an image of a Roman people which were perhaps less vicious than history of assassination makes out. 

My other highlight from this volume was the relentless twists and turns throughout the Roman Emperors. We see assassination after assassination, plot after plot, coup after coup. My limited Roman knowledge prior to reading had not equipped me for quite the violence within the upper echelons and the Praetorians Guard. It seems that to many taking the purple was in fact nothing more than an act of delayed suicide. 

Anyhow, when I have finished all six there will be a much more detailed review which will likely get its own entire blog post... so watch for that (hopefully in early October). 

Alexander Hamilton - Ron Chernow: 

To start with, Hamilton is one of my favourite musicals. The talent of Lin-Manuel Miranda in the production of that show is simply phenomenal and must be watched - at the very least on Disney+. 

Right, musicals over. The book is simply a masterpiece of one of history's most influential figures. It is not an overstatement to say that Hamilton was perhaps the most important person in forming the "modern" United States. This makes it very difficult, in my opinion, for Chernow to maintain and absolute and unbiased view, and yet, while reverential to Hamilton, Chernow manages to obtain a very fair balance. Clearly, Hamilton had a checkered history - not least with the Reynolds Pamphlet he published with all the gory details of his affair, and his advocacy for duelling. But in many respects, Hamilton was far more admirable than the other founding fathers who's words did not live up their actions (namely Thomas Jefferson on slavery). 

Perhaps, this was my biggest take away from the book: just how much I side with Alexander Hamilton over Thomas Jefferson. Hamilton has been a controversial figure throughout American history, but I truly believe he is one of the greatest states people to ever live and his prolific pen carries us through his lifetime easily when guided by the expert narrative of Ron Chernow. For history fans, (and those who liked the musical), I would argue that this tragedy is a must read. 

The Incerto - Nassim Nicholas Taleb: 

Ok, so I didn't read all of the Incerto books, but I did read three of them, so I'm bundling the three under one category under Taleb. I will shamelessly admit that I had read all three of these books before, and no doubt in the future I will be reading all of them again. For those interested / involved with finance, Taleb is without doubt a MUST READ! Below, I will give a short paragraph to each of the books I read. 

Antifragile: 

I think the key behind anti fragile is in lessons for life. We do not want to be involved in systems which actually make us more susceptible to damage. Rather, we should strive to do the opposite of add fragility, namely to become "antifragile". Taleb starts this book with a rather long introduction pointing to what is the opposite of fragility? Is it robustness? No. It is things which gain from disorder. 

For finance people, the main message is this: don't get involved in risks where you are fragile to extreme blowups in volatility. Manage your risk so that you are always prevented from the risk of ruin. This is the key takeaway of the first for me. 

Skin in the Game: 

Next up we have skin in the game. The message here is that we should not be taking advice from people who do not have a position on themselves. From a philosophical standpoint, Taleb believes that advice-givers should be tied to the outcome which the advice-receiver gets. If I am told to buy a stock, and that stock goes down, then the person who recommended it should also lose out. This is the principal of skin in the game. 

What I like about this though is how Taleb extends beyond finance. In medicine, for example, doctors may have incentives to prescribe something simply because failure to prescribe can result in lawsuits. This links in closely with anti fragility - our bodies are designed to heal and to repair so going to the doctor for every minor thing may only add to the fragility of the system! 

Of the three, this was probably my favourite read!

Fooled by Randomness: 

The basic principle here is that in many professions, the upper echelons are populated more by luck than skill. I have a favourite phrase: 

1) Success = Hard Work + Luck 

2) Great Success = Hard Work + A lot of luck 

This seems to be the principle espoused by Taleb. If you take a sample of 10000 fund managers, then in a random year 50% outperform and 50% underperform the market. Those who underperform are out. The next year, we're down to 5000 and the same again. Eventually, you have the people who by nothing more than chance have outperformed 10 years in a row. People think they're geniuses... but are they? The luck may run out. Past performance is no guarantee of returns. 

While skin in the game is my favourite, I would highly recommend Fooled by Randomness to my finance followers. It is the most directly applicable. Probably my favourite quote from the book is Taleb saying he is 100% certain there is a Western tradable security that is 100% correlated with the weather in Ulan Bator in Mongolia by nothing more than chance. I half suspect he is correct. 

Next Month: 

Next month, I am going to be reading the second volume of the Decline and Fall, a short book of walking tours names "Walking London's History", Boris Johnson: The Gambler by Tom Bower (many thanks to Uncle Jeff for the present), Trillions, and Edward Luce's The Retreat of Western Liberalism. It should be a cracker. 

AS always, please do reach out with your wonderful suggestions. Some of my favourite reads of the year have come from recommendations, so please do keep them coming! If you'd just like to chat books or markets... fill out the form at the top and drop me a message!

March 22 Payrolls Primer... Damp Squib?

Friday will bring us the next Nonfarm Payrolls report. Once again, it's hotly anticipated, but the importance of payrolls relative to CPI prints has, in my opinion, diminished over the last few months. The labour market is extremely strong and the Fed knows this, so individual payrolls prints are unlikely to be quite the same driver as we have seen in other periods. 

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What is the Payrolls Report? 

The Nonfarm Payrolls report is released monthly and contains a whole host of data about the labour market in the US. Through the pandemic for a time it was less important, but generally it is a critical and highly watched piece of data. The employment report is likely to shape the Fed's reaction function from now on, unless inflation becomes even more persistent. The report is release on the first Friday of the month at 08:30 ET (that's 13:30 UKT). 

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What's Expected? 

Economists are currently predicting an increase of 480,000 jobs for the month of March. This would be down from the prior month's stellar gains of 678,00. However, that kind of number was clearly unsustainable, so there's little evidence of this being bad for the economy. 

Private Payrolls data released Wednesday showed an increase of 455,000. Note, however, that the ADP report is a notoriously unreliable indicator for the NFP report. I mean, ADP hasn't even accounted for all of March when published. 

What is particularly interesting is that there were big NFP beats in both January and February. This probably means that economists are raising their expectations to avoid being caught on the downside again, and this could well lead to a significant miss in the report on Friday. 

NFP Reports Recently - Trading Economics 

Note, these gains are significantly higher than pre-pandemic levels, where an NFP report would typically see 200k jobs added in a given month. Thus, the pace of job gains continues to be remarkable. 

Don't forget... the payrolls report is both complex and multi-faceted. Key will be the unemployment rate, participation rate and the revisions to the previous months. I have stressed this in recent reports - it pays to be careful. 

The participation rate, for example, has been ticking up higher quite quickly in recent months, and a continuation of this trend could easily lead to a rise in the unemployment rate if the hiring rate slows at all. These kind of situations could start to complicate the Fed narrative, although the inflation objective is so clearly dominant at the moment that I suspect little can derail 50bps at the next meeting... beyond that, who knows. 

What do I expect? 

As already mentioned, the consensus has been too low for the last couple of payrolls reports, so I wouldn't be surprised at all if the tables turned back for this meeting. I personally wouldn't be surprised to see a miss with a print like 250k. This would be pretty sharp and probably lead to a stint of USD weakness - especially if we see a corresponding uptick in the participation rate. 

If we don't see an outright miss, I wouldn't be at all surprised to see some significant downward revisions to prior months. 

What's the trade? 

For me, the USD is already priced for perfection in terms of Fed hikes, so any kind of miss looks like a sign for USD weakness to me. As mentioned at the start though, the focus is all on inflation and not so much on employment. Last month, we had a 0% change in Average Hourly Earnings, which I thought was interesting... if we see the same again then it could really be indicative of wages being squeezed by inflation, but again this is a complex dynamic affected by severe wage pressures in some sectors and not others. 

The trade for me is to be long GBPUSD into the meeting. The £ has been under significant pressure in recent weeks, and I think the £ has a better chance for gains than the Euro following the meeting. Likewise, with a number of risks out of the way for the £, it seems likely to me that we have room to consolidate a bit and make way for a leg higher toward 1.34. After the release of the report, I do think there could be a quick retracement as the market realises this report is not important for Fed policy, but either way, I'd rather be short USD than long going into this report. 

As always, please do reach out with questions, and I will try to be hot and fast with reaction notes to my email subscribers. To subscribe via email, simply fill out the box to the top right... it's free! 

The March Reading List

Welcome to the third reading list of 2022! Given that geopolitics is dominating the news over the last month and a half, I thought it was very much appropriate to emphasise both history and geopolitics in this latest edition. 

Over the course of March, I read on everything from Russian oligarchs to WWII to the previous "empires" of the world. I hope you enjoy reading about what I've been reading, and as always please do keep your recommendations flooding in... I promise I will get around to reading them eventually (there are currently 12 books on the waiting list...). 

Putin's People - How the KGB took back Russia and then took on the West: Catherine Belton 

I'm ashamed to say that this book has been sat on my shelf for almost a year, and it was only the Russian invasion of Ukraine which made me realise that this was currently essential reading for understanding the geopolitical system and the sanctions process. 

Unsurprisingly, a number of the names in this book are now familiar to anyone who's been paying close attention to the news lately... Abramovich, Gennado, Timchenko, Potanin and so on. There's so much of the rise of Putin which I was totally unaware of, and more than that so much interlinking between the current regime and former KGB members. 

These posts are never supposed to be pure synopses of the books, but rather are designed to outline their relevance for the average reader of the blog, and I have to stress, this is most important reading for everyone... simply because it is so current, and to understand the complex world of sanctions, the invasion of Ukraine, and Putin's possible motives, you have to read this book. 

A brief criticism on this book... I don't know if I had an early edition or something, but there was the odd typo / miswritten sentence here and there. But don't let that turn you off, it is most definitely essential and critical reading! The most important takeaway has to be the extent of Russian money/influence embedded not just across London but also the USA, and it is quite frightening to think just how far the money trail might go. 

Churchill: Andrew Roberts 

Next up in my biographies of key historical characters is the magisterial work by Andrew Roberts on Winston Churchill. I bought both the book and the audiobook for this, and I have to say both are stunning... but I would recommend the audiobook as an accompaniment - simply because it makes digesting this 1000 pager a little bit easier. 

This work is simply astonishing. It is comprehensive, yet entertaining... yet also still full of gravitas. Punctuated by many of Churchill's witticisms, Roberts navigates us through the life of this most extraordinary man with an even-handedness which I actually found quite surprising. None of the current Churchill controversies are shied away from - particularly surrounding Churchill's views on race among other issues - and Roberts handles them with extreme nuance and historical perspective. 

Clearly, I could spend most of this review writing about Churchill's various wartime heroisms or exploits, yet I'm not going to because it's frankly pointless to even try to summarise... this book is a titanic achievement, and even the non-history fan would delight in every page. The book takes us through the full range of emotions, from amazement at Churchill's prison escape, to awe at Churchill's prescient war predictions, to tears in his moving speeches... I confess I even felt the dreaded pride that I could claim to be even the same nationality as this most heroic figure. 

Looking to our current situation, one can't help but feel that a Churchillian viewpoint would be most helpful in trying to gauge appropriate responses to the crisis in Ukraine. We must be sure to reflect that the easy path of appeasement of Putin's regime is not the right one, and rather we must seek to impose the maximum pain on the regime while balancing the costs to ourselves. One thing Roberts definitely gets right is the focus on Churchill's mistakes, and at times Churchill did make fatal errors in earlier conquests and Roberts does not spare Churchill for these, but clearly the man was right at the time for the job, and has rightly been celebrated as a hero ever since. 

The Prime Ministers - Reflections on Leadership from Wilson to Johnson: Steve Richards 

More on leadership next, and I read about the "modern" Prime Ministers and their respective approaches to leadership. This is an extremely good read since more than anything else Richards focuses on the flaws of the various leaders and how these flaws almost inevitably led to each PM's eventual demise. 

What I thought the best takeaway from this book was that generally, the longer a PM is in power, the more likely it is that they will bring about their own downfall. A prime example of this is with the Iron Lady Margaret Thatcher. Initially, she had a relatively solid cabinet whom she relied upon for debate, but after the third election victory, despite having another solid majority, she threw it all away by becoming increasingly convinced in her own convictions. I hope to learn from these lessons myself in any future trials of leadership I may be fortunate enough to have. 

I was also particularly surprised by the biography of Gordon Brown. I found myself with significant sympathy for the crisis which he faced and the completely unfortunate timing of his rise to power. Years in the shadows only then to be eclipsed by a global crisis. Nonetheless, he too was not without flaws with his early musings about a general election only to change his mind time and time again later on. Conversely, where I expected to feel sorry for Theresa May, it turned out I felt less empathy than I did previously... a catalogue of errors played into her failure, and her history as a successful Home Secretary in fact did not prepare her at all for leadership. 

This is definitely a book worth a read for anyone who seeks, or is currently in, a leadership position. The lessons run far and wide, although there does seem to be an inevitability behind many of them, such that even sufficient study wouldn't help prevent that air of invincibility which arises after a long period "on the job". 

Genghis Khan and the Making of the Modern World: Jack Weatherford

Well, this one was a little bit different to the rest, but wow did I learn a lot. I've never studied the Mongols, and prior to reading this all I could have probably told you was that they were the only people to ever invade Russia in the winter successfully. 

Nonetheless, I feel much more erudite on the subject having read Weatherford's absolutely fantastic history of the Mongols. While the title refers to Genghis Khan, it should be stressed that this book goes far beyond the life of Temujin (Genghis Khan's actual name - 1162-1227) and spends a lot of time on how his descendants both expanded, and then frittered away the vast empires. As with all great powers though (see the next section)... their expansion beyond their means and increasing militaristic investments almost always leads to their eventual declines. 

Anyhow, as an introductory text on the Mongols, this is definitely the one to go for - it's less than 300 pages! Significantly shorter than every other book I read this month! Clearly, Genghis Khan has quite the reputation for being a vicious marauder in the West, and yet this book revealed to me that this perception perhaps isn't necessarily as accurate as it first seemed. In fact, Genghis Khan generally hated the principles of torture and needless murder, and offered mercy to cities if they surrendered to him. It was, in fact, some of the descendants who began to engage in much more barbaric acts. 

In other areas the Mongol Empire was also critical to the development of the Western world - in terms of money and trade especially. I'm not quite sure I would go as far as Weatherford does in terms of the importance of the Mongols to today, but no doubt this has changed my perception on just how revolutionary the Mongol Empire was for the world as a whole. 

For those unaware, a map of the extent of the Mongol Empire is below... wow! 

Source: World History Encyclopaedia 

The Rise and Fall of the Great Powers: Paul Kennedy

I think the first disclaimer required with this book comes from the fact it was published in 1988. Thus, the dynamic of the world in these 30+ years has of course shifted dramatically once more since Kennedy authored this book. Nonetheless, the book gives critically important insights into the way in which global pre-eminence shifts. 

The main sections of the book consider the Habsburg Empire, the British Empire, the Industrial Powers in the run to the First World War, the Second World War and the American Century, the Russian Empire / USSR, the resurrection of Japan and the beginnings of China. You may well think this is far too complex a range of topics for one book alone, and I would probably have agreed with you before reading this, but much like Henry Kissinger's "World Order" (see the very first reading list for this), this is a concise, insightful and highly researched investigation of Great Power. 

The central conclusions of Kennedy's work are that economic and military power go hand in hand, but often the decline of economic power can stem from the overspending on military powers. We can see this clearly with the Habsburg and British Empire, the Soviet Union, and also to some extent the US here and now. 

The final chapter of the book is devoted to "predictions" for the future, and here Kennedy (writing in 1988) shows that just being erudite on a subject doesn't make you guaranteed to be accurate (although, in fairness he does admit this himself). Kennedy in my view underestimated the rise of China, but at the same time overestimated the strength of Japan - which has stagnated largely in the last two decades. He also underestimated the likelihood of the collapse of the USSR with hindsight. 

Nonetheless, the lack of predictive correctness hardly matters when you have a book which is so well written and constructed as this one. I am not going to lie, however, you must have a strong interest for geopolitics to even consider reading this one... it is quite academic, lengthy and detailed. You could probably get a good dose of the detail just by reading the first sentence of every chapter and have a good idea for Kennedy's general thoughts and theories. That said, I highly recommend it to the interested or academic audience, it is remarkable reading and deeply insightful. 

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That's all for this month. I hope that many of you will go away and buy some of these ones... I think they are all highly relevant to the current geopolitical situation. 

Next month, I'm changing tack a little bit... but there's still going to be a good dose of history. Firstly, I'm going to be reading (and watching) Hamilton - the version by Ron Chernow. Then, I'm going to be reading Edward Gibbons' first two volumes of The Decline and Fall of the Roman Empire. Well, I'll be honest and say I'm going to try and read it... it was written originally in the 18th century, and will be roughly 1200 pages for these first two volumes. 

Why am I reading it? Good question... it's cropped up in about 5 books I've read recently as a reference, and it was one of both Churchill's and Teddy Roosevelt's favourites... so why not :) 

The change of tack though comes in the form of Nassim Nicholas Taleb. I have a coursework project this month, and I'm totally unashamed to say that I'm going to be re-reading a broad swathe of his works to help with the module. I'm going to go with Fooled by Randomness, Anti-Fragile and Skin in the Game. Why not the Black Swan? I hear you ask. The reason is simply because I read it recently anyway, so there's no need to do it again. Nonetheless, still have a Taleb Trinity for the month ahead, so wish me luck :) 

March 2022 FOMC Primer

Right... let's get to it. Wednesday will bring what will probably be the most important Fed meeting of the year. Sure, we all know that the Fed is going to do a 25bps hike, but the question is where do we go from there? 

The Fed's decisions are darkened by the prospects of economic uncertainty and high inflation.

Hopefully, Wednesday will bring some drama from Fed Chair Powell and we will finally get a better impression of where the Fed sees rates going, what the Ukraine crisis means in terms of uncertainty on Fed policy, and also an idea on the terminal rate / target balance sheet size for the Fed. 

All of this means, there is a huge amount which could affect the outlook for interest rate hikes in 2022. Currently, markets are pricing for 7 rate hikes this year according to Bloomberg. 

I have been very aggressive in recent months saying that this is overpriced, and that the reality is we will see closer to three hikes. I've already revised this once from the beginning of the year (where I expected two). I now change my 2022 forecasts once more, to 4 hikes. But that's it... unless the facts change dramatically, I reckon we will only see 4 hikes this year. (Notice how I've not mentioned the size of the hikes I expect to be enacted ;) ). 

It is useful to begin this primer with where the Fed was just three months ago at the December meeting. At that meeting, forecasts were updated and Fed officials provided their expectations for future policy in the form of "the dots" which are below.

Source: Fed - Summary of Economic Projections

As you can see, at the December meeting, the majority view was for US rates to end 2022 around 0.5-1%. What we will be interested to see is just how much higher these dots are going to be revised in light of the latest inflation data. 

To me, I suspect to see quite a substantial increase - probably with the median dot placed around 1.5%. However, remember that there is only one dot that really matters... and that is Powell's dot. We do not know where this is, but expect the market to take the initial report as a signal to move higher (at 18:00 GMT tomorrow), and then Powell to come out and stress the risks. 

Last thing on the dots... there is NO EVIDENCE WHATSOEVER that Fed policy plays out anywhere close to them, but the market thinks they are useful so there we are. They are just another forward guidance tool. 

The need to act: 

Everyone knows inflation is high, but so what... there is little the Fed can do to stem the surge in global commodity prices. Interest rate hikes will, of course, play into demand destruction. But when shortages are as acute as they are, only extreme volatility can perhaps curb some of the enthusiasm for commodity assets. 

The chart above though, is more concerning. It shows 5y5y inflation expectations (basically, the 5y expected rate in 5y time). These have been edging higher pretty rapidly, and the Fed is likely to be concerned. If longer term inflation expectations are above 2%, it is pretty likely that actual inflation will be above 2%. At some point, the Fed must act to bring inflation expectations down and restore confidence in the population that it has the situation under control.

How to trade the Fed: 

For me, this meeting will go much as the ECB meeting. First, we will see some hawkish policy statement released before the press conference. Then, the presso will start and the questions will pour in, Powell will stress the uncertainty around the outlook, throw in a few concerns about "demand destruction" and "uncertainty from global supply chain issues" and stress the Fed's willingness to "support the economy" should it be necessary. 

After an initial spike in the USD, I would expect to see a fairly quick and rapid reversal in the press conference. This is just my hypothesis, obviously if we get a dovish statement, then it could be the opposite where we see Powell hawk it up later. 

Either way, I suspect the overall effect will be for the USD to be unchanged, but for equities to stage a bit of a rally as I suspect it will always be less bad than the market expected. 

Basically, don't trade anything before the statement, then move the opposite way. 

THAT'S ALL FOLKS: 

That's really all I want to say on here... no doubt more thoughts will cross my mind before the meeting, so those will be going exclusively to email subscribers. Don't worry, it's free to sign up - just use the form at the top right!