Faber News Flow

Two weeks ago, when discussing the imminent avalanche of cash set to be unleashed by the Treasury - as a tsunami of $800BN in extra liquidity hits markets over the next 6 weeks, and a total of $1.1 trillion in the next 10 weeks - we said that " nobody was paying attention" to this coming flood of liquidity. Since then, some have started to pay attention, with Bloomberg writing an article yesterday titled " Yellen Shift on Vast Treasury Cash Pile Poses Problem for Powell " in which it described the liquidity "tsunami" as a move which aims to return its cash position at the central bank to more normal levels, and which "will flood the financial system with liquidity and complicate Powell's effort to keep a tight grip over money market rates." Sounds awfully familiar... as does this: "All this cash from the Treasury's general account will have to go back from the Fed and into the market," said Manmohan Singh, senior economist at th

In comments made on Monday morning,  Fed Chair  Treasury Secretary Janet Yellen set the stage for several  exciting  new initiatives, including a higher corporate tax, potentially higher capital gains taxes, yield curve control... oh and a digital dollar.  Yellen came out  in favor of boosting corporate taxes and said she was also open to raising capital gains taxes,  during a Monday conference hosted by the New York Times. Yellen said that the Biden administration could boost the corporate tax rate to 28% to help pay for "Biden's planned longer-term economic reconstruction program". Such a hike in corporate taxes could immediately trigger profit taking in financial assets that have benefited from a low corporate tax rate (the one that, according to CNBC, was being "priced in" at least once a day for several entire years during the Trump administration).  Despite this, she claimed that the Biden administration has not yet favored a wealth tax, ne

US  money markets are starting to show signs of anxiety about the stimulus-squared flood into the US economy,  bringing forward expectations of the timing of the start of The Fed's next rate-hike cycle. Fed funds futures markets now imply a 70% chance of a 25bps Fed rate hike by the end of 2022 (compared to 50% last week)... Source: Bloomberg And March 2023 is almost a certainty... Source: Bloomberg BofA highlights the central planners' dilemma as  short-run gain opens the door for long-run potential pain . This is illustrated by the rapid closing and then overshooting of the output gap. Normally, BofA notes that this happens many years into the recovery  and is followed by a recession as the Fed puts on the brakes. This time around the Fed has more breathing room as inflation and inflation expectations are low and they are willing to allow a modest overshoot. This gives them time to gradually hit the brakes. But, the market is painting a story of optimism: strong growth and ri