President Trump is the ultimate drama queen. The president is drawing out his FED selection as he titillates the markets with the drips and drabs as to who is the most probable choice. Here is my best guess: Because this president reminds the nation how great he is doing using the stock markets as the barometer it would follow that his choice would be the best one for keeping equity prices elevated. Kevin Warsh and John Taylor would be a problem as the equity markets would become cautious for fear of short-term interest rates rising at a quicker pace. It seems that Jerome Powell and Janet Yellen would be the ones to sustain the current stock rally as they are known entities to the Wall street contingent. Of course the ultimate booster of all asset classes would be Neel Kashkari, the latest dissenter to the previous rate increases in 2017.
If President Trump worried about sovereign bond valuations then Warsh or Taylor would be a more profound choice, but coming from the business of real estate development the president has never met a large debt that can’t be restructured. It was reported that at the President’s Senate lunch today the Republicans held a straw vote for Fed chair and the purported winner was John Taylor. This is of very little meaning because as the president openly belittles Senator Corker he reveals his disdain for the illustrious deliberative body. There are rumors that John Taylor will be vice chair, which may send a hawkish signal but I will fade that for there have been vice-chairmen of quality (Don Kohn, Stanley Fischer) who have kowtowed to the Chair in an effort to build consensus. Pay no attention to the man behind the curtain.
***The great wizard of Europe will back working his magic on Thursday as the ECB meets and President Draghi follows with an hour-long press conference. The financial media is full of rumors about a slower pace and longer duration agreement in which the ECB will cut purchases to 30 billion euros a month beginning in January and extend the program through September 2018. In conjunction with the rumors was a Bloomberg story, titled, “Weidmann May Agree to Extend, Reduce ECB Bond Purchases,” which was initially reported in the German paper, Handelsblatt.
The rumors were attributed to SOURCES and made the following points: 1. A set end date would not be required to achieve Weidmann’s vote; and 2. He could vote for a popular measure of cutting purchases to 30 billion and extending the program for nine months.
This is a very dovish stance for the Bundesbank president so I caution its validity. Thursday can be a very volatile day especially at 6:45 a.m. when the ECB official statement is released and the algo headline readers react to any mention of cut or no change with all the anticipation of a commencement of QT. If there is no change the EURO will drop, gold will rally, and, of course European sovereign debt would rally after its recent selloff this week. BUT I CAUTION: Whatever the headlines read, the Draghi press conference will provide more volatility as Draghi discusses the European economy, and, if QT commences, a rationale of stronger data as being the primary reason for cutting bond purchases.
These two events will provide enough fireworks and I will be working but not writing for the next few days. As always, get your technical work in line so as to establish your risk parameters so have the best possibility to profit from large swings in the market prices. The Fed Chair and ECB will provide profit opportunity to those who are the most prepared.
Tags: ECB, Euro, Fed Chair, Jens Weidmann, Mario Draghi, President Trump, QE
October 24, 2017 at 10:47 pm |
Let’s presume that Taylor or Warsh was to be appointed in 2017 instead of 2009 (which is when someone with their perspective should have been appointed), with national debt having almost doubled in that period, and moves Fed Funds eventually to 3%, and debt/GDP which was 31% in 1981 under Paul Volcker and is at 119% under Greenspan/Bernanke/Yellin:
1) What impact would that have on the national budget?
2) What impact would that have on the economy?
3) What impact would that have on the stock market?
4) What impact would that have on fiat currency?
These are the questions President Trump will have answered for him and have him move in a certain direction. My point is that the central banks have moved us to our current situation which no longer give an opportunity to make correct long term decisions. We are past the point of no return that so the alchemists will hold sway.
Houston, we have a problem.
October 25, 2017 at 5:05 am |
Aserz–all very good thoughts.I went to tapping this similar response to my post to Trader 1 in the previous blog–more will follow
October 25, 2017 at 8:39 am |
Yra, you have to spend more time in Hollywood. In the world of drama queens, Trump does not even get a callback from the first audition.
It would help your faithful readers if you gave us odds. My bet is on Taylor – 5 to 3.
All the best.
October 25, 2017 at 9:49 am |
Stefan–the last place I want to spend more time is hollywood.But as a relative vlalue play you are probably correct .But the Donald is a major pot stirrer in his attempt to control the narrative–a lesson he learned well from Bannon
October 25, 2017 at 8:40 am |
In the world of drama queens, Trump does not even get a callback from the first audition.
Taylor – 5 to 3
October 25, 2017 at 6:59 pm |
Trump Says Yellen is ‘Terrific’.
October 25, 2017 at 7:22 pm |
Chicken–the man speaks like a kindergarten teacher–this is the best;its perfect;its awesome; she’s terrific;the greatest tax plan ever–everything is diminished and there is no doubt the stock market rally is breathtaking
October 26, 2017 at 3:18 pm
Yes, suggesting not the “worst ever”, as during the campaign. 😉
Market surprised me today on perception of ECB taking their foot off the gas I anticipate(ed) weakness.
October 30, 2017 at 5:12 pm |
[…] the Chair in an effort to build consensus. Pay no attention to the man behind the curtain.” – Yra Harris, Oct. […]