, 13 tweets, 6 min read Read on Twitter
Just wrote a 10 msg response to a long chat we've been having around the Fed/Powell, same old stuff, hence my long response to lay it all out there. Thought I'd share with the rest of you, please do share your thoughts as well. Here we go. For those ready for a book. #Dollar #Fed
1\ Did you read the report from the NYFed issued in Jan? Doesn't suggest NIRP anytime soon, the opposite actually. Here's the facts: 1) the Fed is backed into a corner and can never actually "normalize" rates, & 2) Powell's intentions are relevant only in S/T because, 2\
2\ as we all know, we will (ultimately) have another painful sell-off in equities. The Fed is horrified by the prospect of such an event due to the resulting implosion of underfunded (an unfunded) pensions, entitlement programs & retirement funds across the US that'd result. 3\
3\ Thus, whatever Powell believes is only relevant for the very short-term, tactical trade. Should markets blow up, you’ll see another December 2018 moment where (depending on the magnitude) the Fed has no choice but to do “whatever it takes” to save the day, and 4\
4\ “whatever it takes” they shall do. Unfortunately, though they may not recognize it yet, the markets are in control (IMO: this was always the case) and the efficacy of their “conventional” and “unconventional” programs is NIL. 5\
5\ This is a broken record at this stage, just look to #Japan for the future of #Europe, #China, and the US (in that order). Think back to June 2014. What has changed? Then, we complained “The Fed has spent >$4T to buy bonds, driving down the forward returns on financial assets..
6\ “..and investors are pushing out the risk curve, ‘once again’ [this is 2014] piling on the leverage to juice returns while S/T rates in Europe are negative.” Any difference today? The Fed’s built a buffer that’ll prove inconsequential in the long-run, and debts are larger. 7\
7\ “So how do I make money?” WELL, THINK ABOUT IT. WHERE IS THIS HEADING? IT IS DISINFLATIONARY (#eurodollars, #USTs, #USD). Deflation hurts commodity prices & commodity-exporting nations. 8\
8\ Once you factor in demographics, debts, and the dollar shortage (#DollarShortage), the liquidity issue becomes front-and-center and once again, “All roads lead back to the dollar” [Brent @SantiagoAuFund]. 9\
9\ Bottom line: we never actually recovered from the GFC. We just papered over it. Some gaps popped up midway; tried drowning em with more paper. We had QE1, QE2, Operation Twist, you name it. It’s like a doctor telling the obese guy he's fine: "JUST GET A BIGGER SUIT!" 10\
10\ IMO, the #Dollar will rise even as rates are cut and even if the #Fed were entering #NIRP due to the strong preference among bankers in the trenches to hold that collateral, while demand for it grows as it becomes more scarce, exacerbating the issue in a reflexive cycle. 11\
11\ Then comes Plaza Accord II or the int'l elites devise some other scheme to force spending, save banks & attempt to thwart really angry populations wielding pitchforks. But the inescapable conclusion -> #DebtJubilee #Japanification coming ur way. #Gold / #HardAssets, anyone?
See newyorkfed.org/research/staff… for the NY Fed's report issued January this year describing the Fed's New Keynesian framework for monitary policy, why the lingo switched from Zero Lower Bound to Effective Lower Bound (not what u think), etc - if you care, that is (a tad abstruse ;)
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