While I'm in agreement with pretty much all that's been stated here, I haven't seen a final massive blow-off top that usually occurs when Markets get out of hand. Colour me silly, I know, but We humans are prone to making the same mistakes over and over again ala General George Santiana. The Fed HAS lost the plot because it's mandate had drifted into silliness such as fighting "Climate Change"(TM) and controlling employment levels, etc. I ask "How on Earth is a Central Bank suppose to control Employment or "fight" Climate Change(TM)?" The better question is Why? Sad that totally uninformed Wokesters have hijacked pretty much all levels of Authority...
Agree 100% about Fed track record. Back in 2005 tried to discuss the housing bubble with then Fed Chief Economist and he refused to put any of his hundreds of economists to evaluate the problem because Greenspan had already said there was a little froth in the market. Plus he wanted to see a model with good regression characteristics even though the situation was without historic precedent, so models were of no value. Current situation is not much better.
Good write up indeed. Here is the issue I want answered. When the FED starts to withdraw liquidity in June (unless something changes in the next few weeks) how and what will this impact the most. I have heard the biggest impact will be high yield bonds possibly doing the likes of HYG substantially lower (I hold puts) but is this true? After all the market knows this and yet HYG jumped higher over the past few days! How is that possible? Why would any fund but into the HYG just now unless it was massive short covering? I definitely feel like "its going to get a lot worse...before it gets worse." (Tomlin)
Great write up! My cynical self says the reason it took so long for the Senate to confirm Powell was to brow beat him into playing politics so as not to damage the Democratic Party anymore than be possible. If inflation really takes off after the 2022 elections and the Republicans take the Congress, then they will suffer the blame in 2024 and Biden can say his hands were "tied" by Congress. Always, always,always follow the power and the money.
A kindred spirit. I have long railed against the Fed since B school (now 54 years past). Their incompetence is exceeded only by the hubris, such as "we'll let inflation run hot for awhile" as though the suffering of tens of millions of people was inconsequential. In a market economy, no group should be able to set the price of the most important commodity. And certainly shouldn't be allowed to create money, nor invest in the market thereby picking winners and losers.
The reappointment of Powell is evidence that it is hopeless to expect this - or any - administration to involve itself in this critical area.
Keep on ranting. It may never achieve meaningful change but it is a catharsis of sorts. Enjoy your weekly posts. Keep 'em comin'.
I think you are correct. The Fed will chicken out it's just a matter of when. I think the forcing function will be political with the mid-term elections coming up.
Well done David. If the Fed were a private concern, rather than a government/political hybrid, they would be sued out of business.
Being polite for this post, I'll call it hubris. Central bankers the world over believe that they understand the economy so well, they can control it. Neither is true. They deceive us by thinking so. Their models are fantasies, their predictions from them are garbage, and their track record makes that painfully clear.
We need a central bank that functions ONLY like Walter Bagehot suggested it should:
"Lend freely, at a penalty rate, against good collateral."
About more than just housing. The crypto craze's genesis goes directly to FED actions in theiir unproven reliance on 'the wealth effect' that left many feeling less wealthy and inclined to gamble since TINA.
Thank you Mr. Hay, and yes the Fed and Central Banks worldwide are so very overrated. Globalization was the driver of low inflation from 1980 to 2019, with a secular decline in interest rates being its partner.
All of Feds horses and all the Feds men cannot stop basic human fear. The Brutal Ring seeks only to determine when the Feds fear of market collapse exceeds it fear of inflation.
The Fed doesn't need to spend any of it's budget on a dartboard, we know they already have a dartboard because that's what they've been using! They have no excuse. As you said;
"it is a tragedy and a travesty that the Fed basically forced millions of Americans, including of the older generations, into stocks and other high-risk assets by extinguishing returns on safe investments."
As one who falls into the "older generation" club, I'm grateful for people like you who I follow to help me navigate this mess so I'm not a victim, but I am Fed Up with the Fed.
What? No mention of the fact that Jay P is a very wealthy person whose personal portfolios would stand to: 1) benefit from this inflation of assets prices via the low interest rate environment and 2) get hammered unless he seriously shortened his duration (of equities and bonds) before his sudden conversion to Volckerism. This is perhaps a cynical/reasonable(?) hypothesis and not far-fetched given that two other Fed officials got "caught" trading their own book (front-running?) ahead of Fed moves that would benefit such moves.
Fed remains "0-fer everything they've tried" in the post-Volcker era.
Sort of a straight jab from you this time... nicely done.
While I'm in agreement with pretty much all that's been stated here, I haven't seen a final massive blow-off top that usually occurs when Markets get out of hand. Colour me silly, I know, but We humans are prone to making the same mistakes over and over again ala General George Santiana. The Fed HAS lost the plot because it's mandate had drifted into silliness such as fighting "Climate Change"(TM) and controlling employment levels, etc. I ask "How on Earth is a Central Bank suppose to control Employment or "fight" Climate Change(TM)?" The better question is Why? Sad that totally uninformed Wokesters have hijacked pretty much all levels of Authority...
Agree 100% about Fed track record. Back in 2005 tried to discuss the housing bubble with then Fed Chief Economist and he refused to put any of his hundreds of economists to evaluate the problem because Greenspan had already said there was a little froth in the market. Plus he wanted to see a model with good regression characteristics even though the situation was without historic precedent, so models were of no value. Current situation is not much better.
Good write up indeed. Here is the issue I want answered. When the FED starts to withdraw liquidity in June (unless something changes in the next few weeks) how and what will this impact the most. I have heard the biggest impact will be high yield bonds possibly doing the likes of HYG substantially lower (I hold puts) but is this true? After all the market knows this and yet HYG jumped higher over the past few days! How is that possible? Why would any fund but into the HYG just now unless it was massive short covering? I definitely feel like "its going to get a lot worse...before it gets worse." (Tomlin)
100% Agree David. Keep up the good work.
Great write up! My cynical self says the reason it took so long for the Senate to confirm Powell was to brow beat him into playing politics so as not to damage the Democratic Party anymore than be possible. If inflation really takes off after the 2022 elections and the Republicans take the Congress, then they will suffer the blame in 2024 and Biden can say his hands were "tied" by Congress. Always, always,always follow the power and the money.
Thanks for writing this in such a way that regular retail investors can follow along.
A kindred spirit. I have long railed against the Fed since B school (now 54 years past). Their incompetence is exceeded only by the hubris, such as "we'll let inflation run hot for awhile" as though the suffering of tens of millions of people was inconsequential. In a market economy, no group should be able to set the price of the most important commodity. And certainly shouldn't be allowed to create money, nor invest in the market thereby picking winners and losers.
The reappointment of Powell is evidence that it is hopeless to expect this - or any - administration to involve itself in this critical area.
Keep on ranting. It may never achieve meaningful change but it is a catharsis of sorts. Enjoy your weekly posts. Keep 'em comin'.
I think you are correct. The Fed will chicken out it's just a matter of when. I think the forcing function will be political with the mid-term elections coming up.
Well done David. If the Fed were a private concern, rather than a government/political hybrid, they would be sued out of business.
Being polite for this post, I'll call it hubris. Central bankers the world over believe that they understand the economy so well, they can control it. Neither is true. They deceive us by thinking so. Their models are fantasies, their predictions from them are garbage, and their track record makes that painfully clear.
We need a central bank that functions ONLY like Walter Bagehot suggested it should:
"Lend freely, at a penalty rate, against good collateral."
Keep up the good work, keep calling their bluff.
Thanks for the education your material consistently provides
About more than just housing. The crypto craze's genesis goes directly to FED actions in theiir unproven reliance on 'the wealth effect' that left many feeling less wealthy and inclined to gamble since TINA.
Thank you Mr. Hay, and yes the Fed and Central Banks worldwide are so very overrated. Globalization was the driver of low inflation from 1980 to 2019, with a secular decline in interest rates being its partner.
All of Feds horses and all the Feds men cannot stop basic human fear. The Brutal Ring seeks only to determine when the Feds fear of market collapse exceeds it fear of inflation.
The Fed doesn't need to spend any of it's budget on a dartboard, we know they already have a dartboard because that's what they've been using! They have no excuse. As you said;
"it is a tragedy and a travesty that the Fed basically forced millions of Americans, including of the older generations, into stocks and other high-risk assets by extinguishing returns on safe investments."
As one who falls into the "older generation" club, I'm grateful for people like you who I follow to help me navigate this mess so I'm not a victim, but I am Fed Up with the Fed.
He did say he wasn't going to be do a 75 bpt raise? But he didn't say he wouldn't do a 100 bpt raise. There is hope he will come thru.
What? No mention of the fact that Jay P is a very wealthy person whose personal portfolios would stand to: 1) benefit from this inflation of assets prices via the low interest rate environment and 2) get hammered unless he seriously shortened his duration (of equities and bonds) before his sudden conversion to Volckerism. This is perhaps a cynical/reasonable(?) hypothesis and not far-fetched given that two other Fed officials got "caught" trading their own book (front-running?) ahead of Fed moves that would benefit such moves.
Fed remains "0-fer everything they've tried" in the post-Volcker era.
Sort of a straight jab from you this time... nicely done.