Tuesday, July 26, 2022

Morning Note: Hey, they're only human...

Fed chair Powell is believed by many to have held off on going after inflation while he awaited word that he’d have another 4 years at the helm -- as hiking interest rates and roiling markets would risk him losing favor with his anointers. Indeed, once confirmed, he did seem to suddenly come under the spell of a Mr. Hyde-esque mood of sorts.

Ah, human nature… politics… self-interest… Even amid the rapid rise of the worst inflation in some 40 years, one who could ostensibly do something about it was presumably frozen by abject self interest.

Listening to a podcast over the weekend, the featured guest, a seasoned macro veteran, believes that Chairman Powell aims now to establish a legacy that would earn him the reverence of a Paul Volcker (the late-70s inflation slayer), while avoiding the disdain of an Arthur Burns (the reputed puppet of President Nixon).

Well, I’d like to think that the Fed Chair would simply aspire to go down as the public servant who performed with integrity to the best of his ability, with the tools at his disposal, and with the constraints of the day.

Anyways, if indeed Powell is, 
as the macro expert mentioned above implied, looking to go down as a Volcker, then we should be looking this Wednesday for an unapologetic promise – after hiking the funds rate by .75% – to do whatever it takes to slay modern-day’s inflation dragon.

Hmm.... well... Nah!   Frankly, I don’t see it. While Powell may indeed come off tough tomorrow, his tenure thus far has been synonymous with the term “pivot.” And, make no mistake, pivot he will (but not tomorrow mind you) when he and his crew are staring down whatever breaks first as he efforts to cement some semblance of a respectable legacy.

Oh, and, by the way, I’m not suggesting that he should go Volcker -- given today’s setup vs the late-70s… It’s one thing to hammer down inflation (from the demand side) by raising rates to the moon when government debt to GDP amounts to ~30% (late-70s), it’s another altogether when we’re talking nearly 125% (today!).

Bottom line, and cynically-speaking, the efforts of Fedheads past and present to keep the economy humming via the wealth effect (attempting to keep assets buoyed in perpetuity) and to get their mugs on magazine covers (hey, they're only human), 

well, let's just say that -- while there are structural, and situational, inflationary forces we’ve covered herein that would be unfair to pin directly onto the Fed -- they indeed own some portion of the inflation they’re now tasked with tamping…

Remains to be seen if “Winner” will be the title of some future magazine cover featuring today’s Fed Chair.

I'd sincerely love to see it!

Asian equities were mixed overnight, with 8 of the 16 markets we track closing lower.

Europe's struggling so far this morning, with 13 of the 19 bourses we follow trading down as I type.

US stocks are lower to start the session: Dow down 102 points (0.32%), SP500 down 0.62%, SP500 Equal Weight down 0.56%, Nasdaq 100 down 1.02%, Nasdaq Comp down 1.00%, Russell 2000 down 0.81%.

The VIX sits at 23.99, up 2.70%.

Oil futures are up 1.34%, gold's up 0.14%, silver's up 1.18%, copper futures are up 1.67% and the ag complex (DBA) is up 1.18%.

The 10-year treasury is up (yield down) and the dollar is up 0.50%.

Among our 35 core positions (excluding options hedges, cash and short-term bond ETF), 11 -- led by oil services stocks, silver, treasury bonds, base metals and ag futures -- are in the green so far this morning. The losers are being led lower by Dutch Bros, Sweden equities, MP Materials, Eurozone equities and communications stocks.

"We want to get at it. We want to control or resolve the problem. So we analyze it, or we pursue a particular system in order to understand it. But you can't understand something that you don't know by means of what you already know, you can't dictate what it should or should not be."  -- J. Krishnamurti

Have a great day!


  1. I like those pictures. Pictures and Reality speak different things. I am with you and would also like to see that the Fed is doing his job right as a public servant. Besides high government debt, the Fed is also being influenced by politicians like Elizabeth Warren. I would have my earplugs on for every time she speaks. 75 basis point is a given number. Paul Volcker would never announce what he would do next. Therefore, in my opinion, Paul Volcker is the TRUE and ONLY INDEPENDENT Fed Chairman.

    1. Yes indeed Sam, Volcker was a unique, independent character for sure.