The Printing Brrrrrrr…
The global financial system is bigger than any one person, no matter if he is the Chairman of the Federal Reserve, but Jerome Powell is certainly showing us the extent to which one person and a single institution can influence and changed the dynamics of the world’s financial markets, in the immediate future.
Think of Chairman Powell like you would the coach of an NBA team… He’s a great coach, with plenty of winning seasons, good results and he is even wearing a championship ring…
He also happens to be coaching a team, whose roaster includes veterans with championship DNA, but the team has been fighting a string of injuries from top players, new trades that have changed the atmosphere in the locker room and the mid-season, the team isn’t playing well…
Fans saw this crisis brewing for a while; some of the players’ numbers are down and the stars can’t keep doing everything on their own (the stars are the Big-Tech companies, in this analogy) and the fans are the investors.
The coach, the players, the team owners and employees (the administration in Washington in the analogy), the fans and just about anyone involved all love basketball and would never give up the game (basketball and the game are analogous to the stock market and to building wealth), so it’s not like a losing season or a bad stretch is going to shake up the foundations of this structure, but since the expectations of the fans is that this team and this coach should win, no matter what, the last thing they want to see is a defeatist attitude or an uncertain future.
Fans don’t desert a team or stop coming to the important games that quickly, but ticket sales can plummet for non-core games and for transient fans (analogous to retail investors and to buying every dip).
Yesterday, Chairman Powell described the strategy of combatting inflation in very vague tones and didn’t promise any meaningful results in the near future; it’s almost like a coach would say that the team is missing some key players and that it’s taking a toll and we don’t know when they’ll be back and that patience is what’s expected of loyal fans.
In the chart below, you can see how Powell’s answers to reporters’ questions sent the NASDAQ 100 from a 3%+ day to finish in the red, the worst post-meeting trading performance I’ve seen in years:
93% Of Investors Generate Annual Returns, Which Barely Beat Inflation.
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Today, I want to summarize what Chairman Powell say and did not say and on Sunday, the entire publication will be devoted to what this means, going forward.
What Powell said:
- In March, the FED will raise rates.
- The FED will raise rates multiple times in 2022.
- The FED will stop QE soon.
- The FED will start QT this year.
- The labor market is extremely strong.
- The government is failing at addressing supply-side inflation (chip shortages, port congestions, trucking delays)
- Inflation is worse than previously thought and getting even more problematic.
- The stock market takes second fiddle to dealing with inflation.
The market heard these negatives loud and clear and sold-off dramatically, as Powell was speaking these words.
What Powell did not say:
- Will March be 25bps or an aggressive 50bps? (the markets still believe it will be 25bps, but the risk of a faster liftoff exists)
- How many rate hikes will they do? The markets thought 4 hikes, going into the meeting and are now beginning to really imagine 5 of them.
Courtesy: Zerohedge.com, Bloomberg
The team must come together and it, just like Jordan came back wearing 45, it needs hope that somebody can stir the ship back into the right heading.
Governments Have Amassed ungodly Debt Piles and Have Promised Retirees Unreasonable Amounts of Entitlements, Not In Line with Income Tax Collections. The House of Cards Is Set To Be Worse than 2008! Rising Interest Rates Can Topple The Fiat Monetary Structure, Leaving Investors with Less Than Half of Their Equity Intact!
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