Not at all surprised by Fed’s hawkish commentary: Anurag Singh

“We will have to look at the JOLTS numbers and other numbers coming out but if somebody is saying that they are surprised by this commentary, I am not really because to me it is really not surprising and anybody who goes to the markets and look at the prices would know that this is not a surprising commentary by Chair Powell and he always retains that cardsays Anurag Singh, Ansid Capital

Fed’s hawkish commentary, one would wonder whether this is anticipated because the markets do not seem to be prepared for this and they seem to be taking it quite badly.
I think my view on this and I have been holding this for quite some time, it depends on what camp you belong to. But even at a high level, you look at the numbers, the PC inflation number that Fed looks at, you see that since last Jan it is barely budging. It is all moving between 4.56 to 5.1 and that is the range it is stuck in and that is the core inflation that Fed is targeting. So, I understand the market is tired, there is a sense that when you have already reached the range touching about 4.75% to 5%, inflation should come down but inflation is a mindset and it is not complying really. So, the honest judgment is that it is very sticky and it is all dependent on wages. So, we will have to look at the JOLTS numbers and other numbers coming out but if somebody is saying that they are surprised by this commentary, I am not really because to me it is really not surprising and anybody who goes to the markets and look at the prices would know that this is not a surprising commentary by Chair Powell and he always retains that card. At every sentence he says, we will stay at it until the job is done. So I am not quite surprised, but yes some market participants might be.

But do you also concur with the view that the rates will be much higher than what the consensus is at the moment?
Right now, it is what, 5.35 what the Street is working with but the likes of Jamie Dimon, etc, also believe that level of six is something that you cannot completely shrug off. Your take what the terminal rate could be.

If I can just quickly take you back to say September 2021, that is when the Fed started talking about that they will be raising rates. Their estimate was that in next one year the rates would be somewhere around like 0.5% to 1% and look where we are. So, the fact that Fed has not managed inflation as a problem in the last 40 years tells us that none of them have really faced this problem and despite best intentions it is very hard for anyone to really predict where it will be. My sense is that, I would not be surprised if we eventually touch 6% because look, inflation is a mindset. It is what people expect and I think Chair Powell said this repeatedly today as well, he has been off and on saying this, it has really got into the mindset. Even today, now if you look at the prices that are there in the market, it tells you that the corporates have already priced in for the next six months wage hikes so unless you break that cycle it is not going to come down. So, I would not be surprised if it touches 6% because let us put it like this whatever rate hikes have been done so far, they have all been absorbed by the economy. So, we need a bigger kicker really and that is a classic problem. Even in the 1979 when the inflation was a huge problem, I think that is conundrum the Federal Reserve faced that the more they took the rate hikes, the more it was becoming entrenched and absorbed by the economy.

What does one do at this point of time as an equity investor because do you think that the market as you said is not pricing it enough and as it is there is a lot of bearish view coming in after the huge upsurge that we saw at the start of the year, what are you projecting with respect to what is the best strategy on a tactical basis at this point of time with respect to your funds and portfolio?
That is a great question and it all depends on what kind of an investor you are. Now, look I understand in case you are a mutual fund you cannot sit on more than 5% cash, so if the money comes in you have to deploy it and you really cannot send the message in the market that do not put the money now because the market is expensive. So, I think that is something which is keeping the markets afloat at least in India and even passive flows out here I think is keeping the market afloat. And if you do not have a problem of billions, if you are running a fund in billions, then you of course cannot sit out beyond a point. We do not have that problem. We are running a fund which is in to millions. We can always take cash positions and my declared position for the last six months has been that I am 60% cash. Now it is like I am 70% cash. As a fund, it depends on your strategy. We do not have to be invested all the time and we do not have to play these games on everyday basis. We are value investors. We wait for the right opportunity. So, I think that is the call from my side but again it depends on what kind of investor you are. If you are a SIP investor, probably you should continue and you should be happy if the market corrects because then you will buy the funds markets even cheaper. So, I think these are kind of quick thoughts on where you stand. But if you see the avalanche coming, I cannot really put my cash into the market, that will be foolish and I can stay on 100% cash as well, waiting for the right opportunity.