The U.S. and Canadian unemployment data both were somewhat stronger than expected. The markets were trading in focus with the robust U.S. data — equities higher, DOLLAR firm, and bonds trying to adjust in the face of the FOMC‘s tapering plans.
Things took a turn around 11 a.m. eastern time. The precious metals began a ferocious rally, bonds rallied, and all the currencies began to rally actually closed higher on the day even as European interest rates moved similar to the U.S. and equities dropped from their all-time highs. What could’ve been responsible for the moves on a day of good data and, more importantly, the prevailing sense that the Biden White House was FINALLY going to get its infrastructure bill.
In the middle of all of this, the Twitterverse was abuzz on Thursday amid the news that Federal Reserve Governor Lael Brainard visited the White House (as did Jerome Powell). My sense is that President Biden will pick Brainard as the new FED Chair, which is why the precious metals, bonds and currencies staged such action late Friday. The markets intuit that a Brainard-led Fed would be much more reticent to tighten monetary conditions until all sectors of the economy have experienced the benefits of the recovery from the pandemic.
Before the 2020 Jackson Hole symposium, it was Brainard’s three speeches on YIELD CURVE CONTROL that had captured the markets’ attention. Then the chatter YCC abruptly stopped as Powell seemed to believe it was not the correct path. Everything that Brainard has put forward in her years as a governor could be construed as leaning DOVISH, even when the conditions seemed to have warranted a change in policy. If it is Brainard — a statement I make based on market action and not the latest tweet — then the DOLLAR will reflect such an outcome.
ECB President Christine Lagarde created yet again a reason to sell EUROS with her comments the previous week. Remember, she said it is ODIOUS to compare economies in an effort to taper. Well, that gave the Bank of England Governor Andrew Bailey room to surprise the markets on Thursday as he abstained from raising interest rates. That sent the POUND 2% lower versus the euro on the week. Again, watch the DOLLAR to see what investors think about Brainard becoming FED Chair.
The case for Brainard was strongly presented in a Project Syndicate article on Nov. 1 by the MIT macro economist Simon Johnson. In the piece titled, “Reshuffle the Fed Board Now,” Johnson lays out a strong case for Brainard:
“The obvious alternative as Fed Chair is Brainard, a democrat, who is a long -time Fed governor and was previously a Treasury official with decades of experience in the trenches of macroeconomic policy making. She also cares deeply about better worker outcomes, sensible financial regulation, and addressing climate change and helped save the Community Reinvestment Act, which supports lending to low-income communities. On all of these issues, her values are fully aligned with Biden’s.”
Besides Johnson’s argument for Brainard, recall that Senator Elizabeth Warren has already voiced her support and we await Senator Sharrod Brown’s opinion. The final support for Brainard stems from her husband’s role in the Biden White House as National Security Council Coordinator for the Indo-Pacific, Kurt Campbell. Something definitely turned several markets on Friday. If my conjecture is correct get prepared for increased volatility, especially in the U.S. DOLLAR and precious metals, but be patient as this story will unfold in the wake of Congress finally passing an infrastructure bill.
Tags: Fed Chair, Federal Reserve, Jerome Powell, Lael Brainard, U.S. Dollar
November 7, 2021 at 2:06 pm |
Good thesis Yra.
Powell has run an unbelievably easy monetary policy. Anything easier, with everyone concerned about inflation, would panic the long end of the curve.
November 7, 2021 at 3:30 pm |
Great thesis for Fridays action, will keep an eye on it.
Thank Yra as always
November 7, 2021 at 4:07 pm |
Yra
Not so sure about your outlook
I could make the case that reduced spending bill coming from Congress, combined with Fed’s disposition to taper, will keep the USD well buoyed, especially with LaGarde’s odious opinions
While Brainard may be the next Fed head, am not quite sure that this is what moved PMs
My theory? Just another random move at Comex
As long as the world is enthralled with Tesla and BTC, the PM complex contains no useful signals.
PMs are currently neither fish nor fowl. Can’t compete with stocks and the Commodity World won’t let them play in their Reindeer games where ESG considerations and plunging Covid presage further bullishness for industrial metals.
Gold and silver are merely decorative paperweights/doorstops.
Heck, am sure a vintage NFT of a Chia Pet is more “valuable”.
In short, don’t get too excited about the PMs
November 7, 2021 at 5:33 pm |
Michael……you could be right, but I disagree.
When the shit hits the fan, do you really think people will want Tesla and BTC?
Dec. Gold is about $10 away from a pretty significant breakout.
November 7, 2021 at 6:07 pm
When the SHTF, big money what’s something with actual collateral behind it (plant, property, equip, IP), that’s transportable.
November 8, 2021 at 10:22 am |
Temple
Couldn’t disagree more about PMs. They have spent 2021 basing and lulling people to sleep for next upthrust. If we rally from here, moves will be Big. Silver has the industrial angle as well.
I positioned long PM and Short dollars (Euro&Aud) on Technical factors and theory that the weeks surrounding tapering announcement would mark a turning point.
Note that last time we tapered in 2013, it was bigtime Dollar Bullish. I think its different this time…context and nuance…world is alot different than 2013. Instead of deflationary headwinds, we have inflationary. I still like your theory you posited early this year vis-a-vis inflation expectations becoming unhinged. Im betting on it. A factor I think not discussed enough are the labor shortages. Most people see it as evidence that the safety net programs were too generous. I think its possible that COVID deaths created a labor supply shock. Labor Supply shock+supply chain shocks MIGHT = unhinged expectations via wage-price spiral. COLA for 2020 is 5.9%!.
Yra’s observation about Brainard as next Fed chair is adding fuel to the fire.
November 10, 2021 at 3:37 pm
From my DC insider: Biden will reappoint Powell and Brainard will be appointed vice chair. you heard it here first. If so, Powell will resign after Nov 2022 Democratic debacle as the scapegoat and then Brainard will ascend to the throne of the Confederacy of Dunces.
November 11, 2021 at 9:00 am
Bigman–while i respect your views over the years I care not a lick about DC insiders.I twas a year ago that the my toilet paper the NYT had blasted out that Brainard was to be the Secretary of treasury and in 2013 Kudlow was on with Kelli Evans crowing about Larry Summers being FED Chair according to his sources–give me a name and I will tell you how credible otherwise it is just noise and I say this with great respect.Only the NEW YORK upper east siders believe Powell has done a good job as after the debacle of the second half of 2018 ,which was anticiapted in this blog and on with Santelli in July 2018 and what Druck called the failed double shotgun–why is Powell so credible—Mohamad El-erian went from cheerleader to crtic in today’s FT not that it matters—but Powell is medicre and the role of Social Justice Minister has been a huge mistake–everybody has inside knowledge so let the games continue
November 7, 2021 at 6:02 pm |
Do markets care that Brainard is a Communist?
November 8, 2021 at 12:01 am |
Few will take the time to watch 45 minute videos, but I think these really are worth the time.
https://youtu.be/S4cLPkt7J3Q
https://youtu.be/wbjDccuIGy https://youtu.be/wbjDccuIGyA
November 8, 2021 at 1:07 pm |
https://www.yahoo.com/finance/news/rich-millennial-reportedly-plows-90-180001123.html
Reference what Mike said above
November 8, 2021 at 6:07 pm |
My thoughts on the “labor shortage” hasn’t changed.
When you tell millions of people to go home and not work. These millions of people do not sit on the couch and wait for someone to tell them to go back to work.
People adjust their lives, they downsize, move in with a friend or family member, start making you-tube videos (my daughter and is making money), they change careers, go take online courses, grow weed in the back yard, trade cryptocurrencies, Uber eats.
Fast forward a year and tell people to go back to work, LOL. They have found other ways to get by.
That’s what see, it’s a different economy moving forward.
The endless bid by the American worker for USD’s has downshifted .
Good to have you back Yra, I’m still enjoying reading all the comments!
November 8, 2021 at 9:06 pm |
Pierre, while I agree with you about the work force changing and I agree that the pandemic seems to have sped it along. I worry about the long term effects of these decisions people are making. When someone decides to become a actual entrepreneur; I personally don’t think working for uber or growing weed in the back yard qualifies, that is great and should be encouraged. However, if you decide to join and remain in the “gig” economy society should discuss issues such as health care, retirement, sustainable housing and such. Most of these gigs cannot supply a person with those needs. I also believe that companies need to be included in these discussions. Allowing companies to actually plan to have only part time employee’s to avoid benefits is a legit complaint in my opinion. I don’t have the answers but society will be asked to foot the bill in the long run if we don’t address these problems up front. I have very little faith that our leaders will address them though. In closing Please don’t take this as a swipe at your daughter, I know nothing about her and hope she has great success in her endeavor.
November 9, 2021 at 5:49 pm |
Hopgrower, you bring up legitimate concerns, when we are young we tend not to think about healthcare and retirement. As we grow older we and see our bodies and minds slowly fade away, these concerns come to the forefront.
Two things, the “gig” economy, is an economy as the name implies. It’s probably here to stay for awhile. Also, maybe gig workers don’t think of themselves strictly as entrepreneurs, but just as survivalists or a hustler. One has to do what it takes to pay the bills and eat.
All I’m saying is people will adjust to the conditions.
I see adjustments in my neighborhood, sure monthly rent is $1500, but there’s TWO families living in a house, across the street, 3 landscapers sharing one home. So, is monthly rent actually $1500 or $500?
These are transitional times.
No, offense taken from any comments you made, I enjoy the feedback.
As for my daughter, doing what she loves in her early 20’s “Following her Bliss” as Joseph Campbell would put it. With over 40,000 followers on youtube, Smarter than her father was when he was her age. =D
November 9, 2021 at 4:30 am |
A great man once said: “Politicians are not born, they are excreted.”
November 10, 2021 at 3:36 pm |
As far as labor I feel many people have grown to dislike being a cog in some corporate machine. As Pierre says they may try to lower expenses and live a more frugal life in the “metaverse”
If one stops caring about buying a home or Mercedes or designer clothing it is possible to really live cheaply. Those with no kids and few responsibilities can stay home and play Axie Infinity and do Yield farming which is a real thing that boomers have no comprehension of.
A friend quit his job as a coder at a big tech company last year to dive into Crypto. He told me he is now a millionaire in crypto and I believe it (he may need to pay alot of taxes).
Worse, having hired many people in my businesses, many American kids move slow and their work ethic can be terrible. Others have little education despite being educated and low problem solving ability.
I think there are at least two Americas – one where people work hard and SMART and do start ups and another where people slack and try to monkeywrench Capitalism. There is often overlap as well, people dislike traditional capitalism but engage in it growing weed, crypto or gig economy and vote for socialism to help with their health care. Maybe they work hard and smart as well but towards different ends.
Perhaps in a previous generation people did “Turn on, tune in, drop out” and now they “Turn on, tune in (to Crypto and alternatives), and drop out (of traditional work and turn onto untraditional work)”
November 10, 2021 at 6:22 pm |
Well, I do agree that people find other means to make it. However, if they decide to go the minimalistic route, why should me and my business, and you and your business pay for their social programs (ie health and retirement). Also, I think the hippies from the 1960’s thought they wanted this also, however many of them did eventually change there minds and move to burbs. Growing weed in your back yard is a joke. I think for most people, day trading regardless if it is crypto, alt coins, or stocks/commodities will end badly. Will some get rich, yes will most lose all of it eventually yes. We have seen this time and again. Very few people have realistic expectations about trading and markets. As I think many on this blog know, it takes alot of time and work to make money trading. For the average Joe who jumped on this latest market run and made money, now is a good time for them to look at dot com and try for a different outcome.
November 11, 2021 at 10:36 pm |
The propensity to speculate and hoard has caused inflation. And now the massively negative real interest rates are driving more people to speculate and hoard. It is a vicious inflationary cycle and Paul Volcker ain’t coming out from behind any curtain.
10+ years of rewarding ownership over work are now manifesting itself in a revolution. The freedom fighters spread their knowledge & information in real time via social media. Their currency of choice is Bitcoin.
The problem created Bitcoin and now Bitcoin is creating the problem. A problem currently perceived to be worth $2T that Baby Boomers are now finally “diversifying” into out of fear.
Some silly game a bunch of young people created is now actually wreaking havoc on the economy & the Fed can’t do S— about it.
I wonder what the Ben Bernanke playbook says to do about this one! He should go to Blockbuster Video and rent “The Wealth Effect Gone Wild”.
In my mind, the only way this ends is higher rates, lower multiples, and a wave of defaults & bankruptcies, and deflationary reset of the whole system. But I am pretty sure we’ve already determined that’s a bad idea. Pick your poison.
November 12, 2021 at 6:21 am
From Yra—Trader B–really good post as it elevates us to seek for context and nuance to end the game of global central printing as the being and end all of finance.The FED and thus all the other white rabbits fear deflation more than inflation—this is the allure of GOLD and other asset classes to seek to provide shelter from the money storms—Ben Bernanke’s Portfolio Balance Channel as delivered at Jackson Hole in August ,2010 has lit the fire and Powell is the torch bearer to many piles of new tinder—-the FED has cried for inflation and now the Biden team is scared about its effects as the political rally takes hold—-it is one thing to financially repress the RENTIERS but it is another thing when the money illusion of Irving Fisher begins to set the political narrative—more to follow but let’s say goodnight to Jerome as the Academic world is pushing for Brainard–and these are the academics providing the intellectual heft to the Biden economic team—-Stiglitz joince the oust Powell group this week
November 12, 2021 at 3:27 am |
Nov 12 History tells us that private forms of money don’t last long. SEC Chairman Gary Gensler
http://www.geopoliticalcalendar.com
November 12, 2021 at 10:28 pm |
On thoughts of the issues with labor in today’s report that fully 3% of the non-farm U.S. workforce handed in their walking papers in September, with the Bureau of Labor Statistics announcing today, topping the 2.9% figure logged in August to mark the highest so-called quits rate in the 20-year data series; Consider this:
Did you see the piece on Lying flat, or “tang ping” as Chinese are being criticized by Xi for practicing.
If not, here’s the link:
https://www.scmp.com/economy/china-economy/article/3153362/what-lying-flat-and-why-are-chinese-officials-standing-it
This current situation is so much more than covid, or mask mandates, or vaccination mandates. This has been 20+ years in the making, and is a confluence of factors, many and varied. The last two years of wuhan flu have just supercharged an already established force, and the political fiasco of the past nine months has lit the fuse.
Want to know what really started it? Business College Professors.
Globalization, offshoring, just-in-time inventory, lowest cost providers, bidding for your job, financialization of the economy, etc. etc. etc. (as the King and I would say). Oh, and don’t forget, everyone who expects to be a first-class citizen of the country NEEDS a college degree. Without one, you’ll be nothing, worthless, a shame to your parents.
For the last 20+ years, the C-suite has used labor like Kleenex. Go ahead, quote me on that phrase. I should trademark it. And now they wonder why labor doesn’t thank them for management incentive awards/options, stock buybacks, and quarterly performance metrics that make the C-suite inhabitants rock stars and billionaires. And Warren Buffett says that we should all pay more tax. So Warren, WHY DID YOU use Bill Gate’s foundation to shelter 90+% of your wealth from death taxes? Want to pay more taxes, nothing stopping you, here’s the link to pay as much as you like: https://fiscal.treasury.gov/public/gifts-to-government.html
Just leave me and the rest of the prols alone for god’s sake!
So, back to the point. Labor is fed up with what they’ve been seeing and experiencing for a long time. We are at a tipping point in this country in more ways than one, but one is certainly the labor/management dynamic that swings like a pendulum from one extreme to the other. In the coming 5 years, don’t invest a lot of money in companies where labor and energy are a majority of their overhead (like airlines…..) and hope that those container ships off the coast of Cali sink before they can be unloaded. Maybe if people couldn’t buy their Chinese s- – – for Christmas, they’d wake up and realize that America doesn’t make much anymore.
Hey, speaking of that, have you ever wondered WHY Ford or GM or both (together) wouldn’t set up a subsidiary IN THIS COUNTRY to produce the semiconductors/microprocessors that their vehicles require more and more each year? They could employ Americans making them to spec for themselves, and VW, Toyota, Nissan, etc. etc. etc. Why would you spend billions on factories (now closed, or ‘acquired’ by the CCP) in China to produce the END PRODUCT, when it DEPENDS on intermediate products that you outsourced TO China? But no, even with completed (for the exception of the CPU) inventory sitting idle in the middle of a buying frenzy, Ford and GM continue to issue press releases about how much money they’re spending on battery research, electric vehicles, and such bulls- – – that won’t (if ever) payoff for years. Have you ever spoken with a trained physicist about the thermodynamics of EV and batteries? Go ahead, mining the raw ingredients to put 80-100 million of these on American highways will absolutely f- – – the earth. And labor is idled because there’s no reason to build a Ford Edge that’s going to sit in the shipping yard with thousands of others waiting for a microprocessor. Is labor happy? No, they were crammed down in 2009 with the government bailout with wages falling from $50+/hour to $24/hour. And now, they’re sent home to wait for Chinese s- – – on boats to arrive so they can go back to work to wait for more Chinese s- – – to arrive. Does this routine make you feel loyal to your employer? How about when you pulled a double shift every week last year to fill in for those who decided to live on their ‘stimulus’ money and not work? Make you one of the C-suite protected class? F- – – no! No Chips, go home, no work.
The UAW at Deere knows they have them by the short hair now, it’s harvest season. So while Deere has each year been importing more components from China for their remaining US assembly plants to bolt together, don’t you think labor and the union recognizes this as the best time to get more than the initial 5% pay raise management offered? UAW contracts with Ford and GM come up next year, so watch how the Deere saga plays out, it’s predicting the future, just like I used to watch this cycle in the 1960s and 1970s. (History Lesson: Know why the 1970 Corvette I have is from the lowest production year of Corvettes going back to 1962? Because the UAW was on strike against GM in early 1969. Before the strike was settled, GM was so far behind on filling orders for 1969 cars and trucks, that they extended 1969 production through December of 1969, rather than cease in July, and begin 1970 production in late August as was customary. That means that 1970 production didn’t begin until January 1970, and ended in July of 1970, making the number produced the lowest since 1962. History lesson over.)
Ford comes out with their new ‘small pickup truck’ the Maverick (resurrected name from the seventies econo-car days), and it’s the first time in 50 years that I’m interested in possibly buying a NEW vehicle! Yeah, that’s right, EXACTLY 50 years! The ONLY new car I’ve ever owned was a 1971 Mustang Mach I that I ordered new. But here’s the rub on the Maverick, if you’re interested in the hybrid model, it’s assembled in Mexico, (already a bad taste in my mouth) electronics are in short supply, and you can’t find one anywhere. Ask about ordering one and the response is ‘when it gets here’. If you want to spring for the “ecoboost” turbocharged four-banger, it’s assembled in the states, but I’m not interested in it, and it has delivery delays too. Ford could sell as many of the hybrid versions as they could make if it were US made, and had electronics that weren’t sitting on some container boat off the coast. This is just the start of China’s squeeze on the world. They are going to reap the rewards of becoming the world’s factory, and this is just the beginning. So American labor is pissed off because they’ve been pissed on, and now the CCP is using its military competitive advantage to f- – -up the supply lines to the evil capitalists.
Oh, let’s not forget the ‘environment’. Did you know that the emissions standards in Cali are so tight, that a Class 8 semi-tractor older than 2012 is banned at the border? Did you know that Caterpillar, which used to have about 35% of the Class 7 & 8 engine market for trucks no longer makes diesel engines for trucks? The f- – -up at the docks, in the harbors, and across the country is not just a single factor. Getting the s- – – to railheads requires trucks, and drivers, and many are “owner operators” (they own the tractor that pulls the container company trailer) that cannot make Cali emissions. But hey, maybe they’ll buy a new Nikola tractor from Trevor Milton to pull those loads, so long as the destinations are all downhill. Trevor seems to have made a lot of money, I’ll bet he has a College Degree and believes in financialization. He’s the Elon Musk of heavy trucks!
Perfect storm, easily seen if you take a step back and observe.
Now refill that cold highball, make it a bit stronger the second time.
Well the Fed can print an unlimited number of dollars to solve these ‘transitory’ issues can’t they…….but they cannot print more workers. Workers WANT to work. They feel like they’ve accomplished something that they can be proud of, it’s not just the Benjamin’s on the W2. The reason ‘welfare’ is never successful is because there is no pride of workmanship. Workers are not ‘associates, specialists, or even geniuses (those Aaple pukes just kill me) Workers are what your father was/is. Providing for the family, feeling pride in accomplishment.
So is labor in control now? Don’t look for labor to make a big comeback. They will make progress, but in the private sector, still be behind. Want to know why there are so many unfilled jobs, and at the same time, those actually looking for work have stopped looking? We taught them to stop looking! Tang Ping happens. What happens (Dr. Pavlov) when you repeat an action coupled with another action so many times that merely repeating the first action only elicits that other action from the student like a reflex action? Patterning. You’ve hardwired the brain. That’s what WE ARE ALL GUILTY of having done in our own actions/interactions/patterns. Ever hear one of your friends say, or remember having said yourself, “He’s so dumb he’ll end up flipping burgers at McDonalds.” And we wonder why ONLY the drive up is open at MickyD’s and those 15 cars ahead of you won’t clear the order/pay/food cycle for another 25 minutes? Think about it. Go to work at MCD at 16, work your butt off trying to get the basics down from the guy who doesn’t want to be there “training” you, get surly customers telling you that you screwed up their order, you made them late for the recital, you could f- – -up a one-car funeral, etc. etc. etc. (again, as the King and I would say). Really makes you want to work a double shift for the doper that was ‘training you’ when he calls in right? This pattern at all levels, at all employers, at every business to some degree or another has trained workers into being content with much less IF THEY AVOID WORK. If Greed was good for Gordon Gecco, he beat the s- – – out of those beneath him who now only want what Secretary Butz got fired for….and that defines happiness, success, Tang Ping.
Oh, and the latest news flash from AOC and the rest of the ecoweenies is the earth is going to be dead in 10 years because of this evil Carbon thing. WHY THE HELL SHOUD I WORK IF I’M GOING TO DIE ON A LIFELESS ROCK IN 10 YEARS. Patterning. We’ve taught workers they are Kleenex, and Kleenex only works for a couple of blows and gets thrown away.
Another of the many factors in this conundrum that I did not get into is the market for labor itself. Do you know who the biggest employer is today? YOU!
“Government” all aspects, federal, state, local, employ more people than the private sector in full time positions. Often, these jobs pay more, and certainly have more generous benefits. If you want a defined benefit pension, you won’t get it in the private sector, but you almost certainly can in a government job. Nothing against them, but cops and firemen are fully vested in 20 years of service in most jurisdictions, and the retirement pay is often 70 to 80% of their highest annual pay! Ask me how I know, after spending 20 years in the private sector then going back to the Big U for 26 years.
Last fiscal year, the town of Danville Illinois used 100% of their tax receipts to fund their underfunded municipal employees pension plans. That action did NOT fully find them, they are still severely underfunded. Think about that for a minute. Statewide, many towns are close to this condition, and the State itself is so far underwater in its five pensions that they are barely funding withdrawals! Wonder why Illinois has the second highest property taxes, you’re paying 10.5% sales tax, and still drive on some of the worst roads in the world? Now add insult to injury and remember that the past twelve years of zero interest rates are making this condition even worse. Those assets in trust for the pension participants aren’t carrying their weight, and managers have been stretching for returns in places they should not be, so when this bubble “deflates” their drawdown will further exacerbate the underfunded condition. Oh it’s a beautiful world, thank you Central Bankers!
In the meantime, workers are drawn to government jobs with all the holidays, generous pay, almost impossible to be fired security, and the promise of a DB plan in their future, competing for workers in the private sector who have none of this, and management that still want to turn them on and off like a light switch! In the past 40 years, this has all been reversed from the opposite advantages the private sector used to enjoy.
Finished with that second highball? I’ll spare you a third one now.