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@PredictIt

@FiveThirtyEight

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Jim Bianco

@biancoresearch

Sep 20

1/9

All Models Are Wrong, Some Are Useful

Let the Index of Leading Economic Indicators' failure to predict the post-COVID economy be a reminder that this is no longer the pre-COVID economy.

Assuming it is as too many do, including Powell, is how mistakes are made.
🧵

2/9

The August Index of Leading Economic Indicators (LEI) was released yesterday. It is a model of ten indicators that predict the economy.

conference-board.org/topics/us-lead…

3/9

The ten indicators are combined into an index.

As this chart shows, it is at its lowest level since 2016.

Read 9 tweets

Jim Bianco

@biancoresearch

Sep 14

https://twitter.com/biancoresearch/status/1834998770008048024

1/3

Below, I described how the Fed meeting now has maximum uncertainty just a few days before they met. This is unprecedented.

🧵 on how the process works. (Very inside baseball).

https://twitter.com/biancoresearch/status/1834998770008048024

2/3

Remember, Powell wants a 12-0 vote for every policy decision. He is now working the phones by calling every FOMC member to "horse trade" into a 12-0 vote.

He believes that a 12-0 vote gives policy credibility. Dissents, in Powell's opinion, create doubt and uncertainty.

Powell explained this to Davis Rubenstein in July.
---
From the raw transcript, I edited it for readability

7:58 Powell: The way it works is I talk to the other 18 participants regularly. I speak to them at least once ten days before the meeting and think about this three or four weeks before.

What should we want to achieve? What data do we need to see? How do we want to change our Communications? All those things.

So, I talk to people, listen to them, and try to put together an answer that has broad support on the committee. So when we go into the committee on Tuesday morning [its start], I'm usually confident that I know where this will go.

8:55 Powell: These call calls are generally scheduled and go all day. The Friday before the meeting, I think I have 11 half-hour calls. We talk about the economy, we talk about very specific aspects of the economy, about our mandate, and then we talk about policy, so there's a lot to talk about. I take careful notes.

You can hear him explain it here.

3/3

Since Powell wants a 12-0 vote, he effectively gives everyone a veto.

See the chart above and the annotation about Waller. Waller is arguably the most hawkish member of the Fed. So, if the Fed wants to cut, it can only go as far as the most hawkish member agrees.

The probability of a 50 basis point cut was 60% right before Waller spoke, and it was 20% after he was done. In other words, Waller left the strong impression that he was good with a 25-point basis cut, but no more.

The Fed has only seen two dissents in the last four years. Both in 2022 (highlighted). This is the smallest number in over 70 years.

Again, this is how Powell designed it.

So, as he explained above, when Powell went through his 11 half-hour calls yesterday, and the market was 50/50, he had a lot of "horse trading" to do before a decision could be made (a 12-0 voting agreement).

Then, certain reporters are viewed as "Fed whisperers" who can be called and told "blue horseshoe likes a cut" and let them write a story that "signals" to everyone what will happen at the meeting.
I expect this story on Monday morning.

If not, then this process I described might be changing and could stay changed going forward, leading to more uncertainty and higher volatility.

Read 4 tweets

Jim Bianco

@biancoresearch

Sep 13

1/5

Actually, this is different.

Before the June 15, 2002, and March 22, 2023 FOMC meetings, the odds of a Fed move were very uncertain, ~50/50.

@NickTimiraos's stories right before these meetings removed uncertainty.

Yesterday's story created uncertainty (chart).

🧵

2/5

Going into the June 15, 2022, FOMC meeting, things were uncertain with a 35% - 45% odd 75bps hike.

@NickTimiraos cleared it up with this:
June 13, 2022 (48 hours before the meeting)
Fed Likely to Consider 0.75-Percentage-Point Rate Rise This Week
wsj.com/articles/bad-i…

3/5

Mar 7, 2023 SVB fell. The odds were 100% for a 25 bps hike before March 7. They fell to 55% a week before the Mar 22 FOMC meeting.

Timiroas cleared it up on Mar 20, sending the odds back to 86%

Federal Reserve Faces Tough Decision on Rate Increase
wsj.com/articles/feder…

Read 5 tweets

Jim Bianco

@biancoresearch

Sep 12

https://twitter.com/RickRieder/status/1834076623542341692

1/5

Could we be mistaking declining inflation for "residual seasonality?"
🧵

@RickRieder

https://twitter.com/RickRieder/status/1834076623542341692

2/5

The 3-month (orange) and 6-month (blue) annualized inflation rates are much lower than the yoy measure (black).

The argument is these shorter annualized rates matter more because they are more recent.

So, mission accomplished, inflation has been defeated.

3/5

However, there is an argument that seasonally adjusted inflation has a “residual.”

That means the monthly data follows a repeating pattern through the calendar year.

Seasonal adjustments are supposed to remove this.

Read 5 tweets

Jim Bianco

@biancoresearch

Sep 8

1/8

Spot BTC ETFs update

tl:dr
* Inflows now outflows
* Holders have record losses
* Advisors <10% of holdings (boomers never came)
* Avg trade size now <$12k.

It's not an adoption vehicle. Instead a small tourist tool and on-chain is returning to Tradfi.

See posts #4 and #8

2/8

* Total assets in all Spot BTC ETFs are now $46B.
* Down from its June leak of $62B.
* The $46B asset total is the lowest since February 12

3/8

Daily flows are in the top panel, and cumulative flows are in the bottom panel.

* $12B inflows in the first 2 months
* $4B inflows over the next 6 months
* $1B inflows over the last 3 months
* $1B outflow over the last 8 days

Read 8 tweets

Jim Bianco

@biancoresearch

Sep 5

1/5

What to Expect When You’re Expecting

The Fed will begin cutting rates later this month. What should we expect, and what will follow? And how we are positioned for it?

biancoadvisors.com/what-to-expect…

2/5

A few highlights (much more in the link above)...

The blue line below shows the Fed’s funds rate projections from the June Summary of Economic Projections. By December 2025, they expected the funds rate to be 4.125%, with five 25-basis-point cuts.

The red line shows what the market is currently pricing in. The market expects the funds rate to be 3.12% at the end of December 2025, with nine 25-basis-point cuts over the next 15 months.

The market expects this month’s rate cut to start an aggressive rate-cutting cycle.

3/5

Below is the Fed’s favorite real-rate measure, the target funds rate less core PCE.

There are two ways to look at this. One is the current real rate level of 2.88%, which is the highest since 2007, which means interest rates are overly restrictive. However, this argument assumes that the post-financial crisis real-rate period, shown in red, is a “normal” period. From 2009 to 2020, the QE period, real rates averaged 1.08%.

That said, from 1982, the start of the bond bull market, to 2007, real rates averaged 2.55%. So, was the QE period the anomaly? Chairman Jay Powell repeatedly says we are not returning to zero interest rates, suggesting the QE period is indeed over. If so, what is the appropriate level of real rates? An argument can be made that it is very close to current levels, and real rates are not that restrictive.

Anticipating an argument, could the high government debt levels mean real rates should be lower? This is known as fiscal dominance, where fiscal policy dictates monetary policy. Chairman Powell also repeatedly said the Fed would not let fiscal dominance dictate momentary policy. In other words, if debt levels are too high, that is an issue for Congress to address, not the Fed to accommodate.

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