Notes From Underground: Powell Gets Backup From Clarida and Williams

Following Wednesday’s short introduction to the significance of the Powell in Paris speech in Paris, we a digestif in the form of Federal Reserve Vice Chairman Richard Clarida and New York Fed President John Williams providing supporting the chairman. As a result, the dollar sold off, there was a major rally in GOLD, and boost to equities even as earnings proved to be TEPID. But what I’m waiting for is a STEEPENING in the U.S. yield curves when the world’s bond investors contemplate that the FED has ABDICATED any sense of FIDUCIARY RESPONSIBILITY for its status as a reserve currency.

The Powell capitulation was underappreciated on Tuesday but the market appears to beginning to sense a change in the concept of the DUAL MANDATE of low unemployment with reasonably steady prices in the domestic economy. The GOLD and DOLLAR were trading steady until Williams raised concerns about inflation being anchored TOO LOW, opining that the NEUTRAL RATES IN U.S. are around 0.5%. The New York Fed President also said the FED SHOULD ACT QUICKLY WHEN STIMULUS NEEDS ARISE ESPECIALLY SO WITH ZERO RATES, QUICK ACTION IS NEEDED.

Following on the heels of Williams was Clarida, who maintained the FED was just doing its job on dual mandate but then immediately said that there is a LIMIT TO HOW FAR THE U.S. CAN DIVERGE FROM GLOBAL RATES. This has been Clarida’s main policy thrust for the last five months so no new revelations. NOTES FROM UNDERGROUND has maintained that Clarida has been Powell’s point man on the issue of rising global financial and economic concerns as the reason for the Powell pivot. Also, Clarida maintained in the Fox Business interview “that research shows you act preemptively WHEN YOU CAN.”

The bottom line for investors is that the FED and other central banks have trapped themselves in the morass of negative interest rates and QE without restraint of forethought. IF this theme continues to play out the proof will be in the STEEPENING of the yield curves and further softness in the dollar. The precious metals have begun to breakout of previous ranges. GOLD WAS FIRST AFTER THE JUNE FOMC meeting and last week’s POWELL testimony. Silver has now joined the party on Tuesday as there was an unwind of some very profitable long-held GOLD/SILVER spreads.

Also, pay attention to the Japanese YEN as it has rallied in the face of continued new highs in the SPOOS and other equity markets. That’s not a response to RISK-OFF algos. Let me end with a quote from the POWELL SURRENDER SPEECH:

“Central bank communication is increasingly important and increasingly challenging. It is important because clear, transparent communication about the economy, the risks and our policy responses is critical for the effectiveness of our tools and for our accountability to the public in a democratic society.”


“Gone are the days when the Federal Reserve Chair could joke, as my predecessor Alan Greenspan did, ‘If I turn out to be particularly clear, you’ve probably misunderstood what I said.’ Central banks must speak to Main Street, as well as Wall Street, in ways we have not in the past,and Main Street is listening and engaged.”

When in doubt about the failures of previous policies pull on the heartstrings of mainstream America. The global central banks are in Vinny Barbarino mode: Let confusion reign. Will Jay Powell be in Davos in January?

Tags: , , , , , ,

5 Responses to “Notes From Underground: Powell Gets Backup From Clarida and Williams”

  1. Michael Aaron Temple Says:

    As always, another fine piece of analysis.

    I think the big yield curve steepening ONLY takes place AFTER some kind of equity “crash”/sell off when the Fed finally opens up the spigots and damns all torpedoes.

    While I continue to like the Red ED trade, I now believe the far greater reward is finally in favor of the PMs, especially silver as gold is finally reacting to the coming Fed easing and likely debauchment of the USD.

    If we are now entering a bull market in gold after the 6 year bear market that had capped gold below $1370ish, then THE TRADE is silver. IMO, no rip roaring gold bull market (and that is, indeed, what I think lies immediately ahead—$1600 print easily here in 2019, which is “just” 11% up from here—will occur without the gold/silver ratio plunging out of its current “bear market” territory of 80+ (currently 88ish after topping out at 94ish just 2 weeks ago).

    $1600 gold with a ratio of 80:1 should put silver at $20, in my view.

    The ratio has been above 80 for well over 200 trading days, which is a recent record. With gold setting up for a big run for many of the reasons you have cited, I think silver will soon FLY.

    Another interesting trading tidbit, when the gold/silver ratio has previously flipped from bearish to bullish as it moved back below the 80:1 threshold, the average gain in silver in the subsequent 6 months is 30ish%, with a high one time of nearly 60ish%.

    As silver stayed so oversold recently, I think the pendulum will swing quite violently as we head towards year end and into 2020.

    Gold has a very bright future. Silver even more so.

    The political landscape here in the US has never looked more dangerous in the 2.50 short years so far of Trump’s reign. If the Dems nominate a Socialist Progressive, instead of Biden, I think markets will hit the skids next year in fear of what will come should Trump lose.



    PS I hope we can meet up in Chicago next month when I come to town. Hopefully, you have my email and we can “talk” to arrange a coffee or lunch

    • yraharris Says:

      Michael—as the WHO sang–no one had the guts to leave the Temple–I’m free and will see you in August

  2. asherz Says:

    Yra- The readers of this blog should pay attention to the following.
    Willem Middelkoop, author of the 2014 book “The Big Reset,” has top position today at the internet site of the Official Monetary and Financial Institutions Forum (OMFIF) in London, an organization catering to government and central bank officials around the world.
    Read this.

    The volume yesterday in gold and silver futures was over the moon. The attempt to cap prices which has been going on for many years is continuing but the headwinds are getting stronger. The breakout threatens to undermine dollar superiority and change is in the wind. This, a condition brought about by the mindless policies of the Central Bankers, beginning with the old Master of the Universe, AG. Wedged between a Rock and a Hard Place is where Mr. Powell now finds himself, a condition he inherited. I wouldn’t want to be in his shoes today.

    It may explain the sudden resignation of the two top overseers of the New York Fed trading desk, Simon Potter and Richard Dzina with only a 3 day notice on May 28. Why the rush I wondered? The NY Fed has an important position in executing monetary policy and a permanent vote in the FOMC in setting rate policy, and is the panels vice chair. I had suggested back then going long gold and short SPOOS. The second part of that trade has not yet been positive but give it time.
    I would love to see their portfolio positions. Think they may be long any precious metals?

    • yraharris Says:

      Asherz–wonderful post and thanks for the link.Readers of this blog and the comments that support it have been at the vanguard of the growing sense of panic among the failed policies of the world’s central bankers –see Bill Whites interview in May—Powell has been dealt a weak hand and Mario Draghi made it worse with his antics from Sintra in June a day before the Powell press conference—now we have Lagarde to attempt to lend her “prestige ” to try and navigate the ECB out of the swirling waters brought on by ever increased liquidity—-Waspi’s HUBRIS is the Thucydides Trap of central bankers

  3. kevinwaspi Says:

    Yra, thank you for the continued good discussions on Notes, and for the acknowledgement of Hubris, the one natural resource on planet Earth in unlimited supply. Dr. Williams’ “academic” discussion of Fed actions in the face of a slowing economy are just the latest example on display. Interesting to note is the almost immediate kickback from the rest of the anointed, when a N.Y. Fed spokeswoman had to walk it back…. “This was an academic speech on 20 years of research. It was not about potential policy actions at the upcoming FOMC meeting,” they said. (see )
    Interesting also as Asasherz pointed out, the rather hasty departure of two significant names in the N.Y. Fed’s operations area. Even the soldiers are tired of “forward guidance” that is so much drivel. As the old saying/curse goes, “May you live in interesting times”. Allison’s Thucydides Trap has metastasized and spread well beyond the “political science” of its origin, with Central Bankers now terminally ill.
    They will never recognize that economics is the furthest thing from “rocket science”.

Leave a Reply