Notes From Underground

Over the weekend, President Trump blasted a high note from the Conservative Political Action Conference. Again, the president put pressure on the Federal Reserve as he pointed his finger at Powell. He said, “I want a dollar that does great for our country, but not a dollar that’s so strong that it makes it prohibitive for us to do business with other nations and take their business.” He didn’t mention Powell by name but added noted that the U.S. has “a gentleman that likes raising interest rates in the Fed, we have a gentleman that loves quantitative tightening in the Fed, we have a gentleman that likes a very strong dollar in the Fed.”

After this speech it’s easy to understand why the Lighthizer/Mnuchin team has pushing for the Chinese to sustain a stronger YUAN as part of any trade agreement.

***There were two important stories over the weekend: Ben Hunt of Epsilon Theory and Jim Grant, who had splendid piece in Barrons.

In the first, Hunt wrote a piece titled, “They’re Not Even Pretending Anymore.” The astute analyst attacks the recent FED action as being the result of political pressure brought to bear by the president and reminiscent of the famed interplay between Richard Nixon and his Fed Chairman, Arthur Burns. Hunt maintains that this is the domestic politics of 1972 with the rise of a fringe lefty. He wrote, “Good lord,man,imagine who would take over the White House in 1972 if he were defeated! Imagine the insane fiscal spending policies that those Democrats would push on the country if he lost!” Hunt believes Trump has exactly the same problem with the same solution: Jay Powell playing the role of Arthur Burns. And for contemporary purposes, Hunt notes that what Nixon did in private, Trump does in public as exemplified by Saturday’s CPAC appearance.

Then there was Jim Grant’s piece over the weekend titled, “The Danger Lurking In Fed Policy.” Grant takes the FED to task for pursuing its current policy of ultra-loose money even though the crisis has long abated. By seeking to control interest rate prices “artificially low interest rates never fail to store up trouble–facilitating leverage, they promote not growth, but larger balance sheets.” Grant comes to a similar conclusion that the FED would do far better to let the Federal Reserve “at least consider the appealing course of letting the market alone.”

The bottom line for all traders and investors is those who rely on the number crunching of data dependent analysis will continually blindsided by the events of political economy where 2+2=5 is always the answer for portfolio balance.

Tags: Arthur Burns, Ben Hunt, Chinese Yuan, Federal Reserve, Jerome Powell, Jim Grant, U.S. Dollar

This entry was posted on March 3, 2019 at 6:43 pm and is filed under Currency, 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.