Economist Lays Out The Next Step For The Fed

Mr. Steven Ricchiuto, he of a Masters in Economics from Columbia, has laid out the proper plan for the Federal Reserve in this oh so noisy environment in which an unassuming and fairly quiet man is trying to tune out a personal bully on Twitter, tune out the stock market’s daily whipsaw and do what he perceives to be the right thing.

Today, the academic named above throws in with Trump and politely harangues Chairman Powell thusly in an open letter. You can read it by hitting the graphic…

Stagflation this, Volcker that, deflation the other thing… blah blah blah. But then he gets to the interesting parts, the money parts. Of the post-Volcker era he states…

To rein in excess money supply growth, the Fed trimmed bank reserves — high-powered money — which resulted in dramatically higher short-term rates. This shift in policy served to dampen inflationary expectations, and thus inflation, while increasing central bank credibility. The dollar strengthened and elected officials became strong supporters of an independent Fed as a result.

Indeed, in microcosm, these periodic drives to the lower rungs of the Continuum are all about Fed credibility. Credibility rebuilt after events like last year’s break of the monthly EMA 100 limiter (red dashed line) on the 30 year Treasury yield.

In H2 2018 while the supposed bond experts were uniformly aligned in a BOND BEAR MARKET!!! posture and market participants were wondering why Jerome Powell was being so stern amid the stock market wipe out NFTRH noted that the Fed was not going to self-immolate in a blaze of inflationary expectations (featuring out of control long-term yields). Credibility would need to be rebuilt and here indeed it has been, and then some. Continue reading "Economist Lays Out The Next Step For The Fed"

When The Bond Bubble Blows Up

Amazing isn’t it? It was only back in H2 2018 when everybody but you (because you are as smart as I think you are or because you read NFTRH or nftrh.com) and I was unbelievably bearish about the TREASURY BOND BEAR MARKET!!!

Today… not so much. The herd is absolutely pile driving bonds right now.

tlt bond

I know this all too well because while my SHY (cash equiv.) position is doing well it’s not anything like the above, and is basically – given relative position sizes – offsetting a position in this, which I am still holding with all the stubbornness of a pissed off contrarian. Continue reading "When The Bond Bubble Blows Up"

You Have To Invite The Vampire Into Your House

A vampire needs to be invited in order to enter your house. So the story goes. But in this case, we are talking about the Macro house, with its nexus in the USA and its Central Bank.

You see, the Federal Reserve inflates money supplies as a matter of doing business, which is why I noted so strenuously in Q4 2018 that Jerome Powell’s then-hawkish stance in the face of a declining stock market made perfect sense… because the 30 year Treasury bond was not bullish; it was bearish and getting more so under the pressure of rising inflation expectations.

But now as we noted the other day the inflated Sub is losing pressure. As we noted before that Goldilocks is being threatened. Here are the updated ‘inflation gauges’ from that post, continuing to lose pressure.

Q4 2018

But in Q4 the Fed had a threat if its own to deal with as the repercussions of its previous inflationary operations could be exposed to the light of day by the breakout through the Continuum’s limiter if it were not arrested promptly. The orange arrow on the chart below shows the point of concern for the Fed. Continue reading "You Have To Invite The Vampire Into Your House"

The Inflated Sub Is Losing Pressure

The charts are super interesting to look at. How quickly things turn, as if on a dime.

tnx

2018 featured a break above the Continuum’s limiter and folks, you and I were not the only ones who saw that and uttered “ruh roh!”; the Fed was well aware of the inflationary implication. Continue reading "The Inflated Sub Is Losing Pressure"

Amigos 1 & 2 Arrive, #3 Is Still Out There

The 3 Amigos were a blogger’s way of not boring himself to death while fleshing out important macro indicators month after month.

Amigo #1 (SPX/Gold ratio) got home and dropped from target. What’s more, it has taken back the ratio’s equivalent of the entire Trump rally and that is an eventuality we are very open to on nominal SPX as well.

The gaps are interesting and among several possibilities for 2019 we could see fear, loathing and a fill of the lower gap (a greed gap of sorts) prior to a filling of the upper gap, which could blow out the stock bull in manic fashion one day. Relax, it’s just one of several possible roadmaps. For now, we simply state that SPX/Gold reached a very viable target and dutifully dropped with the market stress.

Yield

Amigo #2 (30yr Treasury yield AKA the Continuum) got the bond bears on the wrong side of the boat and kept them there for a couple of months before the big reversal (back below the monthly EMA 100) that came along with the risk ‘off’ rush amid Q4 2018’s market stress. Continue reading "Amigos 1 & 2 Arrive, #3 Is Still Out There"