I hate to gloat but, screw it. I’m gloating. With every FOMC meeting this year, Jerome Powell has become more and more hawkish, but the denial of this still dominates the headlines. He raised the Fed Funds Rate to 4.5% last week, a level unthinkable to nearly everyone, including me, this time last year.
I told you all over a year ago Powell and the Fed were going to war with Davos and the ECB over Climate Change and their push for war with Russia. No one believed me then, and rightfully so. The idea was daft given the Fed’s history, the US’s books and the reality of a “Biden” presidency seemingly hellbent on spending the US into oblivion.
Hell, I barely believed me.
What I did believe was the Fed would be more aggressive than the majority in even the alternative finance space did, what I like to think of as the Zerohedge Set, because I didn’t think Powell was just another garden-variety globalist like his predecessors, Janet Yellen and Ben Bernanke.
In this business, “personnel is policy” is more important than our opinions on the numbers or even the state of the game board. Powell isn’t cut from the same egghead, ivory tower cloth of academia like Yellen and Bernanke.
He’s a private equity guy with a real background in deal-making and assessing risk when his money or his client’s is on the line.
So, expecting him to run the Fed the way Yellen and Bernanke did is a simply a bad assumption.
Powell’s statement on Wednesday was no less hawkish at 4.5% than his statement at Jackson Hole in August before he raised rates by 75 basis points to 3.25% in September. And yet, in the days leading up to Wednesday’s announcement and even afterwards the talk was still all about how he can’t go much higher; this is the last hike before he stops.
In article after article that’s all we hear. Stop raising rates, it’s your fault you’re behind the curve, Powell. Stop trying to make up for it. This guy, Peter Tchir actually thinks a recession is avoidable? Maybe in nominal terms that’s possible. To the normie crowd goosing nominal GDP constantly to avoid ‘number go down’ at the expense of literally everything that makes private capital formation possible may seem like a good idea.
Then again, you may be a Boomer.
But in real terms, terms that matter like directing capital into sustainable investments rather than throwing money at any silly ‘shovel-ready’ project Obama’s minions can cook up in a strategy meeting to sell to the Muppets, the idea of avoiding a recession is ludicrous on the face of it.
If anything, in real terms for fourteen years we haven’t been in anything other than a drawn-out struggle session forcing us to admit under duress that yes, in fact, Virginia, there is a Santa Claus who lives in the Marriner-Eccles building and he can make two plus two equal five.
It’s all been a massive leveraged loan bubble built on trillions in the most egregious spending of future seed corn in the history of the planet. No wonder Climate Change and ‘sustainable growth’ are such an easy sell to the Millennials, they’ve never really known anything other than the debt casino.
To bitch now about Powell being behind the inflation curve is just churlish back seat driving.
As I pointed out time and again, Powell’s reappointment was the subject of intense political struggle on Capitol Hill. He was only reconfirmed 6 months after he should have been and was under direct fire before that.
The policy differences between “Biden” and Powell placed “Private Equity Jay” behind the curve not because he was too chickenshit to start sooner but because “Biden” needed an excuse to not re-nominate him as FOMC chair. Raising rates in anticipation of incoming inflation while wrangling over “Build Back Better” and its $6+ trillion in spending would have given us Lael Brainard, MMT and UBI to eternity.
And the US dollar bears would have rejoiced in having been right all along while Davos grinned like the proverbial Cheshire Cat eating all the canaries.
This willful blindness to the politics of monetary policy is bad enough. But the whining about taking the punch bowl away is just selfishness masquerading as analysis. Like it or not, Powell had no choice but to monetize COVID-19 spending. That’s on Congress and Trump.
I’m happy to lay blame at the Fed’s feet, but only when that blame is appropriate. Congress doesn’t get to blackmail the Fed AND blame them for the country’s ills at the same time.
And this is why I’m gloating today. Because I’m sick to death of this “Spiritual Boomerism” rampant within the financial commentary space that believes recession is the dirtiest word in the English language and avoiding them is the Fed’s real job, even if it costs us our souls.
As I wrote last year:
… because we all want to believe we’re smarter than average bear and don’t want to face tomorrow without our favorite things we go along with the comfortable lie [we have mastered time risk].
In other words, we believe risk is someone else’s problem. And that we owe the debts to ourselves. And it’s okay to foist risk off on those hapless suckers lest we be inconvenienced by the barest minimum of privation.
Let’s call that, in the words of a friend of mine, Spiritual Boomerism.
That Spiritual Boomerism is fed every day by Davos and their flunkies in FinTwit, like Jim Cramer, Paul Krugman and every other dickhead out there talking their book. Davos needs to stop Powell and the NY Banks from upsetting their plans to turn the future into a Phildickian nightmare of total surveillance, 100% tax compliance and the ultimate veto over your economic and, if they get their way, reproductive choices.
If you think things suck now, just wait for the Great Ennui that comes with the Great Reset.
It’s a pernicious narrative woven into the fabric of our daily lives. Davos helped erect this central bank dominated world which undermined our cultural and spiritual strength, addicting us to this idea of consumption without purpose and risk without consequence.
We had the chance in 2008 to flush this system and chose not to. We papered everything over and created the most perverse version of an economy in 2000 years.
We got to process our grief at losing everything during that crisis by going to negative real yields for so long we began to believe that we conquered time itself.
No idea was beyond the pale when the cost of money had no meaning.
And it led us to today where it is the right of 6 year-olds to mutilate themselves without parental consent, all in the name of fighting a goddamned patriarchy we could only wish was still somewhat functional.
It ground forward for another fourteen years accelerating the insanity to the point of identity crisis at a cultural level. There is no idea more indicative of Spiritual Boomerism than that of inflation being inherently better than deflation.
And that’s what drives all of this angst over Powell’s refusal to ‘pivot’ off raising rates. Gods forbid the assholes in power have to give up their third home or the second Bentley. At the rate the two are deflating in Powell’s New America, I’m not sure which one will be worth more in a year.
But the worst part about all of this Boomerist denial is it allowed the ECB’s Christine Lagarde to run the ultimate bluff for more than a year about its truly insane monetary policy, ignoring inflation that we could all see but didn’t want to believe was real.
Because the alternative was realizing that King Dollar had another round left in the tank before getting knocked out by the Global South’s plans to de-dollarize completely.
Since Powell began raising rates in March, EU energy policy dramatically raised the cost of domestic energy. That inflation is a feature, not a bug. And it can’t be fixed. With each sanctions package against Russia (now 9 in total…) Europe’s energy story became more ludicrous and yet the markets kept pricing risk like the US was in worse shape.
Look, I get that Pelosi is a scary old broad, but c’mon!
Lagarde kept putting off the day of reckoning. In July she offset the fall of Italy’s Davos government with announcing the Transmission Protection Instrument (TPI), which is basically Operation Twist for internal Euro-zone debt. At the same meeting she raised rates for the first time.
She should have called it the Toilet Paper Initiative, because that’s what it will do to the euro.
So, like Kuroda at the Bank of Japan, she committed to QE forever and tightening…. simultaneously!
And the markets believed her while continuing to disbelieve Powell.
To say it was bizarre is the height of understatement.
Well, that finally came to an end last week. And this is really why I’m gloating today.
Lagarde finally had to admit that inflation was no longer transitory and that the ECB’s long-run projections of inflation to end this year were nowhere near reality.
While everyone was hoping Powell would only go 25 basis points because US CPI came in 0.2% lower than expectations at 7.1%, no one looked at Germany’s CPI coming in above expectations at 10% just four hours earlier.
Until Lagarde finally admitted she’d lost the inflation battle she wasn’t even fighting, US/German credit spreads still traded like she was competent and Powell wasn’t.
At this point it’s offensive to think that this neck scarf obsessed lawyer has a sharper economic mind than Jerome Powell.
It’s equally offensive to see German debt trading at a 130-140 basis point premium to US debt, given relative inflation rates, energy policies and strength of currencies. Honestly, euro-zone debt is trading like the EU has a trade surplus and a vibrant middle class. These are both lies.
But such is the power of propaganda. Illusions die painful deaths because of the management of perspective that goes on every day.
Lagarde bought herself a few months reprieve with the TPI, but eventually had to admit the truth. Today she still has to choose between defending the euro or defending credit spreads. She can’t do both.
Why does anyone believe she can do either?
Speaking of truth, if there was any in these markets, the US/German 10-year yield spread would be negative rather than positive. On what planet does anyone think, on the eve of wider war in Ukraine, that Germany is a more stable political force than the US?
Because German Greens are such a powerful international force for growth?
I thought bond traders were serious people. Guess not.
After months of my fighting the narrative that the EU has no agency in the policy surrounding Russia and Ukraine, I have to ask the following question: If you truly believe the EU is a vassal state to the US, why aren’t you putting your money where your mouth is?
Why aren’t you buying US debt faster than German debt?
What kept you from making the move?
Or is it that you really understand Davos is mostly in control over US fiscal policy (true) and think they’ll be successful in sabotaging the Fed’s attempts at independence through aggressive monetary tightening (up for grabs)?
That’s honestly the only conclusion I’ve got for why it’s taken this long for everyone to figure out that Lagarde is full of shit, has no cards to play, and is now on the precipice of the biggest bankruptcy in the history of modern banking.
If you think I’ll cry one crocodile tear over the death of the ECB’s credibility in the coming weeks, I have bridge-front property to sell you in Brooklyn.
Powell didn’t embark on this path to salvage his personal credibility. He’s worth nine figures, FFS. This is something fundamentally different that that.
My best guess is that it is exactly what I’ve said it was from the beginning, a fight for the future of capital formation. Either we return somewhat to it being handled by private capital markets or we reach the end state of the past 80 years and the apotheosis of central banking.
Looking ahead, I’d watch the US 2/10 spread to see if this month’s tightening takes hold for real. We’re at -67 bps. A move above -65 this week would be technically interesting.
It might actually be the sign that Spiritual Boomerism is on the wane as more people accept what’s happening.
Powell’s not coming to our rescue. The Fed isn’t our friend. The Fed Put was only a slightly dumber idea than Climate Change being caused by anthropogenic CO2.
The quicker these bad ideas die the quicker we can face our future, bleak though it may be, honestly. And maybe we can put away the childishness of thinking a world without risk is in anyone’s best interests.
Reprinted with permission from Gold Goats ‘n Guns.