Notes From Underground

The news was extremely positive for the equity markets last week. FOUR key points:

1. Retail Sales proved to be much stronger than consensus;
2. The FOMC minutes were very DOVISH as the FED was concerned about the inability of upward inflation to gain traction;
3. The demise of anti-globalist Steve Bannon was greeted with cheers on the floor of the New York Stock Exchange. News of the removal resulted in a rally in the S&Ps on Friday, but it was short-lived; and
4. The bobble heads of the access media reported the dismissal as an elevation of the Davos-inspired crowd, represented by the Gary Cohn wing of the Trump administration.

Many of the Wall Street “insiders” believe this “elevation” of Cohn over Bannon ensures that COHN will be nominated to replace Janet Yellen. In the August 10 post, I noted that the S&Ps had established a powerful negative technical signal–a key outside reversal–as the S&Ps had made all-time highs but closed below the previous week’s low. The failure of the S&Ps to rally on positive news is something to watch going forward. When the NASDAQ 100 put in a similar signal in June, the break in the equity markets proved to be very short-lived. We will watch this for where any rallies fail as an indication of a change in market sentiment.

MY OPINION: Steve Bannon will prove to be a thorn in the side of the Trump White House as he uses Breitbart News as a platform to wage his battle against the globalists trying to direct the national narrative. I BELIEVE THAT GARY COHN HAS A VERY LOW PROBABILITY of becoming the Fed Chair because Trump will lose his MAIN STREET base, which wanted an end to the Wall Street influence. Cohn is the embodiment of Wall Street power and influence. The battle of Main versus Wall Street is far from over as the Freedom Caucus will now raise the banner. This issue is far from resolved and those in the know have proven to be wrong (often). The insiders also believed that Larry Summers was a lock to replace Ben Bernanke as FED CHAIR (until Senator Elizabeth Warren scuttled those plans).

The Financial Times had a very important piece in the weekend edition, a “Lunch With the FT” featuring Federal Reserve Vice Chairman Stanley Fischer. The interlocutor, Sam Fleming, asked Fischer about the idea of a Gary Cohn nomination. He artfully dodged the issue by saying he liked Cohn but the “… current incumbent would be an excellent choice.” The more important issues raised in the interview were that it would be very wrong to roll back the regulation put in place over the last decade. “It took almost 80 years after 1930 to have another financial crisis that could have been of that magnitude. And now after 10 years everybody wants to go back to a status quo before the great financial crisis. AND I FIND THAT REALLY EXTREMELY DANGEROUS AND SHORT-SIGHTED.” Is this a blow to Gary Cohn because Wall Street main issue is the rollback of banking regulations? Fischer continued: “The pressure to ease up on small banks is fine with me. But the pressure I fear is coming to ease up on large banks strikes me as very, very dangerous.”

This certainly does not lend support to Gary Cohn. In an important comment in reference to Alan Greenspan’s recent comments about there being a BOND BUBBLE Fischer made a troubling response: “I don’t feel I understand it fully, and therefore I feel uncomfortable.” Fischer is saying the persistence of low, real long-term interest rates being a conundrum should bother all investors. There has been far too much central bank balance sheet building for the Fed vice chairman to continue to admit to not understanding why interest rates fail to respond to FOMC monetary policy. Risk premiums are far too low in a world where the mentor of the MIT-trained central bankers feels uncomfortable with present values. To quote Alfred E.Newman: What, Me Worry?

Tags: Fed Chairman, FOMC, Gary Cohn, SPS, Stanley Fischer, Steve Bannon

This entry was posted on August 20, 2017 at 4:42 pm and is filed under Equity, Fed, United States. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.