We had to get back home
And when we opened up the door
We had to get back home
And when we opened up the door
It is a great honor to feature another podcast with Peter Boockvar for The Financial Repression Authority. Peter is certainly one of the regular commentators that I watch with great interest whenever he is on Bloomberg, Fox Business or CNBC. I think we cover much of the global financial landscape. While it may run long, it is a lot easier than reading a 20,000-word blog post. Pour the scotch and give it a listen.
Janet Yellen and the FED take center stage tomorrow and the consensus is for NO CHANGE. The market believes the FED will be on hold until March. BUT I OFFER THIS: If I was the FED chair I WOULD RAISE RATES 50 BASIS POINTS to take some of the risk out of the U.S. equity markets. The S&Ps are virtually unchanged since the December FOMC meeting but the market’s enthusiasm for anticipated tax cuts, regulatory relief, and possible currency intervention means the FED cannot wait to let the economy run “hotter for longer,” especially because of the 4.7% U3 unemployment level. If Chair Yellen wishes to burst the TRUMP exuberance it is time to move aggressively to stem the rise of a potential inflationary threat.
Yes, the day of decision is upon us and everybody is SURE of a 25 basis hike from the FOMC. IF I WAS IN CHARGE–NO, NOT JOSE CANSECO, WHICH WOULD BE MONETARY POLICY ON STEROIDS–I WOULD RAISE RATES 50 BASIS POINTS AND ISSUE A WARNING OF MORE AGGRESSIVE INCREASES TO COME. Alas, I am but ashes and dust. The FED has prepared the market for a certain 25 but here are the things to watch:
The first Friday of the month brings big news for the data dependent Fed. The market consensus is for 185,000 job gain and average hourly earnings increase of 0.2% and the work week to remain unchanged at 34.4 hours. In my opinion, a HUGE increase of 300,000 jobs with another 0.4% increase in wages (similar to last month) would bring great pressure on the FOMC to increase FED FUNDS more than the market’s expectation of 25 basis points. What I am saying is purely THEORETICAL but it would make for an interesting discussion for the DATA DEPENDENT FOMC. It’s especially interesting as the exuberance of the tax cuts, infrastructure projects, rollback of regulation, the equity markets should prompt the asymmetrical nature out of the FOMC decision-making process.
So Jamie Dimon is being considered for Secretary of Treasury as the theme of Wall Street Insiders being the only “Stuarts” of the financial system remains on the front burner. What is interesting is that the rumors persist even as JPMORGAN is fined more than $280 million for providing jobs for the offspring of the Chinese elites in order to secure an inside track to the China power center. Hey, why not put Dimon in charge of the Treasury? That way he can hire the New York elite’s Ivy League kids for internships and other such jobs. It would really secure the fidelity to JPMorgan wealth management teams even more than being a bank recognized as too big to fail. Again, the most competent person to be the Secretary of Treasury is Sheila Bair for her wisdom, regulatory experience and strength in combating the Wall Street “wizard,” Tim Geithner. Jamie Dimon for Treasury ought to be a non-starter and he would be crazy to take the job for the intense scrutiny he would undergo. Enough of this rumor. Let’s get back to the Fed.
The experts are out with more ridiculous forecasts about the Trump victory and what it means for the various aspects of the financial markets. But let me toot my own horn for a moment: The trading outcomes for a Trump victory were on target, except for the dollar rally sustaining itself, but that is something I will be analyzing as we go forward. It amazes me how the media rushes back to the same forecasters who have so badly predicted many of the major political outcomes of the last two years. An important book for my readers is Tetlock’s “Superforecasting,” which makes a very powerful argument about following the experts.
There is a very MINUTE chance of any FED action ahead of the November 8 presidential election. The polls are far too close and as previously stated only if Hillary had an insurmountable lead would the FED raise rates in an effort to regain some of its lost credibility. THE MOST SIGNIFICANT PIECE OF THE FED STATEMENT WILL BE THE FOMC VOTE. The previous meeting saw a shift to 7-3 for maintaining the current policy with all the dissenters being regional Federal Reserve presidents. Stanley Fischer has been–the Governor who speaks loudly but carries a small stick–failed to bring action to his frequent speeches about raising the fed funds rate. If the Fed vice chair were to bolt from the unified group of FOMC Governors and dissent against Yellen and Brainard that would lead to a more hawkish view on FED policy. I THINK THE VOTE WILL BE 8-2 as Boston Fed President Eric Rosengren will move back to supporting Yellen .
On Friday, Chair Yellen delivered a speech at the Boston Federal Reserve Conference, “At The Elusive Great Recovery: Causes and Implications for Future Business Cycle Dynamics.” Her speech was titled, “Macroeconomic Research After the Crisis.” My short response to the questions posed by Janet Yellen have been answered by many NON-FED economists and most prominently by Richard Koo in his great work on BALANCE SHEET RECESSIONS. My sense is that the FED is an insular organization and pays little note of those outside its Ivory tower. Yellen’s second question was: “Whether individual differences within broad groups of actors in the economy can influence aggregate economic outcomes–in particular, what effect does heterogeneity have on aggregate demand?” Now, GET REALLY SCARED:
My appearance with Rick Santelli on CNBC picked up on last night’s blog post. We discussed our concerns about the 7-3 vote in which the Fed Governors bested the Presidents. The FOMC has proven to be horrendous forecasters as Larry Summers suggested in his Washington Post op-ed in which he called out Yellen for her speech at Jackson Hole. Comparing Yellen’s forecast to Bernanke’s horrendous outlook on the housing crisis containment in 2007 was a tremendous insult. It seems that the Magnificent Seven have circled the wagons in defense against the ubiquitous criticism being leveled at the world’s central banks from fellow academics, traders, and pension and insurance companies. There was an interesting headline by Bloomberg that summarized Yellen’s press conference: “Yellen: Rich, Deep, Serious Intellectual Debate Today.” The intellectuals prevailed within the walls of the world’s most important debating society. The outcomes from central bank policy will make the fourth quarter a land of great trading opportunity. Do not be short volatility on a middle-term basis. The investment world is sitting on the tinder of multiple prairie fires. Which spark will light the tinder?