Notes From Underground: Powell’s Pathetic Political Posturing

First of all, my offer of any part of a $10,000 bet with 10-1 odds against Jerome Powell being renominated as FED CHAIR is OFFICIALLY RESCINDED. The Fed Chair’s speech was so pathetic that it can only be explained by his desire to be renamed central bank head. Powell’s speech would be called DOVISH on any given week but there were six FED presidents speaking out in favor of moving up the schedule for tapering QE to counterpunch. It was not only the increased hawkish stances of previous UBER DOVES, which provided cover for Powell but the highly esteemed Mohammed El-Erian and Larry Summers also called for the FED Chair to be bold at Jackson Hole.

Blackrock’s Rick Rieder also foamed the market runway by noting that QE had no effects on the anything but asset prices. Powell had stock prices at record highs as a support to cushion the blow of any “TAPER TANTRUM.” Throw in the recently announced Standing Repo Facility and and “taper tantrum” will actually be soothed by massive finances to support BOND PRICES. Everything was in place for a stepped up pace of curbing asset purchases to contend with the headline inflation of 4%, but this chair was not for turning.

While FED presidents spent the week worrying about the rise in consumer prices, Powell used Friday’s speech to return to the EMPLOYMENT MANDATE. This is no surprise for readers of NOTES FROM UNDERGROUND because we have called Powell the Minister of Social Justice as he maintained that providing the jobs for those who “through no fault of their own” became unemployed. On Friday the mantra was elevated as Powell cited the transitory nature of used car prices and other raw material goods. JOBS WERE ONCE AGAIN PARAMOUNT, pushing back against the desires of many FED members worried about inflation. Powell proved yet again that the central bank can choose either mandate to suit the purposes of lower for longer.

The Wall Street crowd were relieved by Powell’s dovish stance, which pushed the S&Ps to yet another record high. The problem for Powell was that the DOLLAR and GOLD as many other commodities rallied in sympathy. With three masters to serve the FED has a great deal of flexibility. The COUNTERFACTUALS of choice provide unlimited rationales for America’s monetary authority. The DOVISH speech as many of my e-mails proclaimed my have been meant to serve Powell’s masters in the White House. Unless…

It may be that the FED and the U.S. Treasury have come to see the value of the DOLLAR as critical to the GLOBAL FINANCIAL RECOVERY. If the FED were to move preemptively to end QE while the ECB, BOE, BOJ and others kept QE on full throttle it might result in a DOLLAR RALLY. This is problematic because over the last three years the emerging markets have borrowed massively in dollars because of the very low RATES. As we saw in March/April 2020, a DOLLAR RALLY can cause tremendous tension for foreign-based DOLLAR DEBTORS.

The FED‘s liquidity flood has led to huge dollar borrowings, which again prove Milton Friedman’s economic rule, “There Is No Free Lunch.” On the Financial Times’s website Sunday, there’s an article making the DOLLAR aspect of Powell’s dovishness credible, titled, “Emerging Economies Cannot Afford “Taper Tantrum’ redux,Says IMF’s Gopinath.” The IMF’s Chief-Economist noted that “a lot of the problems we’re facing, even with regard to inflation and supply bottlenecks, have to do with the fact that we have the pandemic raging in different parts of the world.”

Gopinath warns that because of the raging pandemic, “emerging markets are facing much harder headwinds. They are getting hit in many ways, which is why they just cannot afford a situation where you have some sort of a tantrum of financial markets originating from the major central banks.”

Former IMF Chief Economist Maurice Obstfeld said in the same FT article government debt in large emerging economies rose to 60.5% in 2020 from 52.2%. It was the biggest surge on record. There is genuine concern about “an increase in the tightness of dollar financing conditions and perhaps a reversal of capital flows.” Maybe this is what prompted Powell’s dovish speech but if so then we must become hyper-sensitive to the FED‘s triple mandate: global finance because of the world’s dependence on dollar finance. Again, we see the outcome from the SWISS NATIONAL BANK DECISION JANUARY 15, 2020 when borrowers in cheap Swiss interest rates got crushed by an appreciating Swiss franc. Nothing is every as it seems in the world of 2+2=5.

Here’s a recent podcast recorded on Thursday morning as I sat with the Financial Repression Authority’s Richard Bonugli, the highly respected Harley Bassman and Brian Pelligrini. Enjoy the discourse as there was lots of disagreement but clarifying potential potential profitable trades. Pour a quality libation and listen to the issues raised for your potential profit.

Click here to listen to the podcast.


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10 Responses to “Notes From Underground: Powell’s Pathetic Political Posturing”

  1. Andy Says:

    Hey Yra, great post as always. I would love to hear your thoughts on the direction of treasury spreads in the coming months, thanks!

    • Yra Says:

      Andy–thanks so much—but when you sat Treasury spreads are we discussing the CURVES—if so the next blog will be of keen interest to you

      • Yra Says:

        Andy–let me pose this question—would you rather buy a 5 year note with a real yield of -160 or a 30 year bond with an effective negative real yield of -30 basis points—-this is not a rhetorical question but one I am reflecting on as the basis of how i look at the CURVE in a world where the sovereign debt markets are fighting against the tide of central bank intervention—it is not just the FED but the ECB and BOJ that global investors have to take into account–the 10 year German Bund has a nominal yield of -45 basis points with an inflation rate of over 2.5% for an effective real yield of NEGATIVE 3%—your question is not to be dealt with lightly unless your stock portfolio rises daily

    • Yra Says:

      andy–i need you to clarify if you mean the yield curve—if so I will respond in the next Blog but the podcast has an in-depth discussion

  2. Pierre Says:

    I haven’t listened to the podcast yet, but looking forward to it!

    It does make sense that with the Taiwan/China situation, the Fed, Treasury and the White House would not want to create another crises in that part of the world now.
    But will they be able to prevent the rise in the dollar as the geopolitical risks appear to increase, is this just another buying opportunity for the dollar?

    What I took from the speech is that Powell’s looking and hoping for more wage inflation as a final goal, not so much full employment.

    From Powell:
    “Wages did move up across the income spectrum—a welcome development—but not by enough to lift price inflation consistently to 2 percent.”

    BTW, once I heard Yellen was endorsing Powell to continue as Fed Chair, all bets were off.

  3. Asherz Says:

    Powell reminds me a little in appearance and the content of his testimony, of special counsel Robert Mueller. ‘Nuf said.

  4. bob zimmerman Says:

    Thanks Yra. It was an excellent listen! I hope i’m alive to see who is right Harley or Brian concerning long term rates.

    It’s a must listen.

  5. Kevin Waspi Says:

    Glad to see you retract your bet. It’s becoming clearer each day that Jerome likes the spotlight enough to invoke the Rahm Emanuel “never let a crisis go unused” strategy in keeping rates lower for longer and maintaining asset purchases. If U9 unemployment falls, wages won’t rise enough. If dollar swap lines aren’t enough to provide safety, new tools will be forthcoming. If the Mideast lapsed into “peace in our time”, then global climate change will be the mandate of choice. With an unlimited number of reasons for Jerome to don his Superman cape, I expect he’ll outlive me in his present role. Financial Repression IS the “new normal” as Mohammed would say.

    • TraderB Says:

      A thought-provoking academic thesis became a mind-blowing financial experiment gone wild.

      In this new normal of rogue central banking 2+2=5 just became a SPAC, went public, and just “tokenized” it’s future utility.

      So 2+2 = whatever price the next guy is willing to pay.

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