Notes From Underground: The Politics of Money

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.

***Also, I would advise returning to the previous blog and reviewing the comment and responses to Trader B. It’s worth the scroll.

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5 Responses to “Notes From Underground: The Politics of Money”

  1. Bosko Says:

    Yra–Isn’t it strange how bearish comments on the gold stimulate such human emotions from investors? I don’t think you would have received any such criticism for bearish comments on any other asset class as you did for gold on the USA Watchdog interview from 2013. I still have yet to find anyone who has built significant wealth hoarding gold. There’s no argument that gold is a perfect unit of account because of it’s natural characteristics, this is a “no-brainer,” and it should be used as a medium of exchange, not hoarded in a vault. Holding a little physical gold as insurance is one thing, but holding a lot of gold as a long term investment with no income, is a bad idea. This defeats the whole purpose of capitalism and investing.

  2. Richard Papp Says:

    I am one of those “deplorables” that have added significant value to my portfolio not once but twice with the gold. Once in the late 1970’s and than again in 2002-2012. From 1980 thru 2016 I also “hoarded” US Treasury Notes and Bonds. Presently, the fundamentals for gold are good but the technical present a problem…………….

    It’s all in the timing!

    • Bosko Says:

      Absolutely Richard, I agree, it’s all about timing, and I would add risk management as well. Two skills that average investors are lacking, so they depend on advisors for a solution. The problem is, many financial advisors are not educated in the importance of gold in a properly diversified portfolio, because they can’t earn trailer fees on an asset that produces no income. Therefore, gold is mostly ignored by the mainstream investment advisors, a sad situation considering it is the most successful form of money in history.

    • yraharris Says:

      Richard and Bosko—nice interchange and Richard I agree totally with your final assessment.The Fundamentals are great but eh initial move was to fast and I discussed with Anthony Crudele who I am now going to refer to as C—there is always mean reversion—I think this week will be very important for the Gold as the longs were washed out this morning following last week’s substantial sell off–

  3. Chicken Says:

    Price action appears to follow this:

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