Notes From Underground: Wow, My Sweet November

First and foremost, I apologize for any confusion with the efforts to get some money flow to Santa Mike at Marillac St. Vincent Family Services. I put in the wrong contact/email for Mike Sturch ( Mike has been raising money to feed the hungry, clothe the naked and educate the inner city youth in Chicago providing pre-school programs to raise the level of learning for those suffering at the lower rung of the socioeconomic ladder. Every dime goes to meet the needs and my friend Mike has been doing this for more than 50 years. Today’s inflation is situation is creating extra stress for those in need. Thanks for your indulgence.

On Wednesday, Jerome Powell spoke at Brookings and his speech, plus a strong Q&A session, was comforting enough for Wall Street that the FED would be moving to slow the pace of interest rate rises. THIS IS NOT A PIVOT BUT A POTENTIAL PAUSE. If the FED slows the pace of hikes while real interest rates on short-term money are still NEGATIVE, well then myriad asset classes are deemed investable.

The critical question for NOTES is why did Chair Powell walk back the very HAWKISH NOV. 2 PRESS CONFERENCE? Remember that the FOMC statement was deemed somewhat dovish, which led to a quick rally of ALL ASSETS, from bonds and stocks to precious metals and currencies.
The FOMC statement contained a few lines, which led market participants to “think” a slower pace of tightening was possible. Powell saw the market action and disabused the market of any slowing of pace sending the markets to new lows for the day. Days after the November meeting some policy makers hinted that Powell was unhappy with the stock rally and felt the need to crush it (see Bullard and Kashkari). It seems that some FOMC members were gleeful that asset prices tumbled in response to Powell finding what I referred to as his inner Andrew Mellon.
Powell on Wednesday didn’t not seem gleeful about crushing asset prices but took a more wait-and-see approach, which provided a month-end that was sustained during the first trading day of December. My sense is this: Powell has heard from some voices of dissent within the FED about a slower pace of rate rises to measure the effects on the lowest parts of the LABOR MARKET as there are several labor economists at the table (Lael Brainard, Lisa Cook and Phillip Jefferson). The most dovish outcome at any FOMC meeting would be an 8-4  vote with some members voting their concern about potential job losses.
My thinking about this stems from an early FT article yesterday by Colby Smith titled, “Fed Officials in Danger of Splitting on Future Rate Rises, Warn Economists.” There was a very important quote from Bill English, a former director of the Fed’s division of monetary affairs. He said, “It’s a group that likes consensus if they can reach it, but they may not be able to. The fundamental issue is that it’s going to be much less clear what they need and want to do with policy.”
A second critical point to support my theory was the question posed to Powell at Brookings by the highly respected Claudia Sahm as she was the principal economist at the Federal Reserve Board of Governors. Her question is the one i have been pleading for at the FED press conferences (give it a listen at the 45-minute mark):
Claudia Sahm: “Large rate increases are pushing the dollar up … are you worried about creating a global recession to achieve your DUAL MANDATE that then makes it harder to achieve your goals?”
Jerome Powell: In this world,global financial markets matter for us and we are monitoring that carefully. The best thing we can do for ourselves and the global economy is get inflation under control. The world isn’t going to be a better place if we take our time. The empirical costs of bringing inflation down only rises with delay. It’s a risk management matter so we needed to do what we did and NOW WE ARE IN A PLACE WHERE WE CAN SLOW DOWN AND REACH THAT ULTIMATE LEVEL.
***Now, here’s a link to a new podcast with Swen Lorenz of Undervalued Opportunity Ideas. Enjoy this with a fine libation. Swen is worth a listen as he is definitely not a rote financial advisor.

Click here to view the podcast.

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11 Responses to “Notes From Underground: Wow, My Sweet November”

  1. kevinwaspi Says:

    Regardless of what anyone thinks of the central bank itself or its present members, I continue to marvel at the notion of accomplishing two diametrically opposing goals at the same time, namely stable prices and full employment. Add in the third unofficial goal of “equity”, and we see the need of knowing exactly how many fairies can dance on the head of a pin, and for how long.

  2. Bob Zimmerman Says:

    People are spending. The recession talk is premature. Powell maybe creating what he is trying to avoid. A Arthur Burns.

    • Yra Says:

      Bob—I don’t use the recession talk because I cannot agree with the NBER definition or IMF assessments.The problem remains is how much deleveraging from a global QT and how many more problems will arise because of what Julian Bridgen refers to as the R*2 financial conditions—-2023 will see a great deal of ECB and potentially other central bank protected entities be revealed if the reservoir of bank reserves is really drained

  3. Asherz Says:

    Jacob dressed in Esau’s clothing to appear like someone he wasn’t.
    Jerome Powell is Arthur Burns in Paul Volcker’s clothing.
    The voice is the voice of Volcker but the hands are the hands of Burns.
    Nesis 27:22

  4. Asherz Says:

    BTW, anyone notice that Credit Suisse stock making an all time low? And SNB also known as the Swiss National Hedge Fund down over 40% in the last 10 months?
    The little boy (called Feddy) has his finger in the dike but he better get ready to employ his other fingers and toes in the months ahead.

  5. Asherz Says:

    That’s Genesis 27:22

  6. Franl Scuccimarri Says:

    Yra. I know that you follow Zoltan Pozsar. I was wondering if you or anyone else can share Zoltan’s latest newsletter or how we can publicly access it.

    Many Thanks


    • Yra Says:

      Frank—i hope you were able to find it—I do not have authority to post the piece but as usual it is very thought provoking—if Zoltan provides me with permission I will post it

      • Frank Scuccimarri Says:


        Thanks for your reply. Fortunately I was later able to find it on Twitter. Thanks again

  7. Frank Scuccimarri Says:

    Speaking of Credit Suisse, does anyone have access to the latest piece from yesterday by Zoltan Pozsnar?

  8. Reid Says:

    I think frustration on the price of oil + increase value in USD has caused this rate increase (“pause”) to be considered under reviewed. Winter is here and EUR/USD would probably need to increase in value in order to have higher purchasing power of U.S. oil. Given the Ukraine war complexities.

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