On Tuesday, I sat down with the Financial Repression Authority’s Richard Bonugli and Marc Faber. The last time Dr. Faber and I spoke, there were several profitable investments that evolved from our deep discussion about the global political economy. Give it a listen as we discuss the global central banks and potential profitable areas of investment. Marc has fabulous insights on the global economy and NOTHING is out of bounds. This is a man who finds great opportunities during times of chaos.
Click here to listen to the podcast.
The CPI report for January was released Thursday and the headlines were disappointing as the reported data was a bit higher than expected. EQUITIES, BONDS (especially short duration — five years and in) took a dive, metals dropped and the DOLLAR rallied. But then the markets turned and all assets reversed. Why?My conjecture was that the worst had been priced in and, as discussed with Dr. Faber, REAL YIELDS are and will be very NEGATIVE even if the FED raises four or five times in 2022. Asset prices are far more sensitive to REAL YIELDS rather than NOMINAL.
Then around 11:40 a.m. Chicago time, all asset classes abruptly started selling off. It happened to coincide with remarks from St. Louis Fed President James Bullard, who talked about a March hike of 50 basis points and a full 1% rate increase by July (while also beginning quantitative tightening in the second quarter). However, there was no discussion regarding the pace of the balance sheet unwind, so we’re not sure if Bullard is in the Rafael Bostic camp of $100 billion a month. (For the record, Bullard’s predictions have historically been very poor.)
There was a later rumor touted by Zero Hedge (the National Inquirer of financial media) of a rate hike Friday, which resulted in the belly and short-end of the CURVE rates moving higher as the the April FED FUNDS FUTURE contract closed at an effective interest rate of 55 basis points. Before Bullard’s comment, the July FED FUNDS futures contract was already anticipating almost 100 basis points by the end of JULY. Thursday’s drop in the July fed funds futures now imply a 125 basis point level by the end of that month.
The White House is very concerned about the optics surrounding HEADLINE inflation. But even if headline inflation drops to 4% from 7.5% and overnight fed funds are 2.5% the real effective yield is still NEGATIVE ON A REAL YIELD BASIS, which OUGHT to still bode well for all sorts of assets.
The problem that still remains is the impact of Quantitative TIGHTENING ON THE ON OVERLEVERAGED GLOBAL FINANCIAL ASSETS AS WE EXPERIENCED IN THE SECOND HALF OF 2018. Give the podcast a listen for further elucidation on these fragile financial times.
Tags: CPI, fed funds futures, Federal Reserve, inflation, James Bullard, Marc Faber, quantitative tightening, rate hikes, real yields
February 10, 2022 at 9:02 pm |
Yra,
Good discussion with Richard and Dr. Marc. On the interest rate hawk-talk, I quote from today’s Grant’s:
“Incredibly, the asset purchase train rolls on. Reserve Bank Credit rose another $10 billion over the past week, pushing interest-bearing assets on the Fed balance sheet to $8.84 trillion. That’s up 20% from a year ago and 115% from this time in 2020.”
Harry Truman never did get a “one handed economist”.
Keep up the good work!
February 10, 2022 at 11:34 pm |
Not to worry about higher rates. Golly, Fed Funds at 1.5% or 2.5%, a joke. Paul Volcker would be laughing so hard. And when the market has a 20% correction Powell will pivot so fast that people will be wondering why he wasn’t on the US figure skating team in the China Olympics. But by then the Fed may have lost whatever credibility they had left as main courses at the dinner table had changed from a steak to spaghetti because of the dollar’s destruction.
February 11, 2022 at 12:35 pm |
The last time US inflation was on the rise and hitting 7.5% was in 1978. Back then, the US federal government’s debt was 32% of GDP. Now, it is 130%.
February 11, 2022 at 2:18 pm |
Arthur–beautiful post and reflects why things are never the same even though in an effort to simplify the soothsayers always provide forecasts without context—thanks for all your posts over the years
February 14, 2022 at 7:27 am |
Arthur–nice analysis and dead right on target but in the BOWELS of MMT it doesn’t matter anyway until it does for a responsible electorate will do the right thing
February 14, 2022 at 12:07 pm
Yep! By the way, still thinking about Platinum.
February 11, 2022 at 12:37 pm |
+
Feb 11 Democratic recession since 2006. Less than half of the world’s population now live in a democracy.
http://www.geopoliticalcalendar.com
February 11, 2022 at 6:08 pm |
Just asking, did gold get such a bid today because of the situation in Ukraine seems to be ratcheting up?
February 13, 2022 at 11:26 am |
Pierre based on Yra’s teachings over the years the answer is yes. Further, geopolitical bumps like this are short lived. I took advantage of CNN’s tail wagging the dog to sell my trading position in gold on Friday. Clearly the WH and CNN beating the war drums to get inflation, crime, dead cops, etc out of the headlines. Gold likely lower tomorrow.
February 13, 2022 at 12:08 pm |
Thank you.
February 14, 2022 at 7:25 am |
Bigman and all –thanks for continuing the work of this BLOG —it is worth the effort over these years—-thanks so much for your continued support and the GOLD last night provided new entry points
February 13, 2022 at 5:10 pm |
For those of you who didn’t see this, the upward adjustment to NFP for January was 3.3 Million…..they were upwardly adjusting for the firing/quitting of workers, many of whom never hired. This got almost no publicity……I’m Shocked
Estimates extrapolated from the seasonally adjusted establishment survey data projected employers added 467,000 jobs in January, after the previously estimated payroll job decrease for December was revised from 199,000 to 510,000. The payroll jobs increase for November was revised from 249,000 to 647,000, changes that largely reflect the effects of updated seasonal adjustment models, which were also part of an annual benchmark revision . . . the unadjusted data, meanwhile, shows that there were actually 2,824,000 fewer payroll jobs remaining in January than in December, as the normal post holiday seasonal layoffs in areas such as retail, wholesale, goods transportation, leisure and hospitality were normalized by the seasonal adjustments..
February 16, 2022 at 4:53 am |
The wealthiest 10% of Americans own a record 89% of all U.S. stocks 🤔
February 16, 2022 at 11:24 am |
Data… https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/chart/#range:2000.2,2021.3;quarter:128;series:Net%20worth;demographic:generation;population:all;units:levels
February 16, 2022 at 12:35 pm
Munger says concerns over wealth inequality ‘motivated by envy’
https://news.yahoo.com/exclusive-munger-says-concerns-over-174357687.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAH8h2mSUQagdvo5yY4FBKl8uO8h_riVKyX7WuMztmpjasNugZaEVzSLCP4JcuKKNtsggp_Ip7xSnDVpYojO7Q0xp2V9VnG3LUb6ppCgvRqB0Wl-Xs5y9TXKFIEg_RGXqR-aoeLt0_wt6CKIm7rCg4YyzoAldyDQOBgrczaLAGzj0