Faber News Flow

  The following article by David Haggith: This past week we got to observe Fed Chair Jerome Powell and the US stock market  and  the US bond market do everything I said they would do in their complicated shuffle of ships-and-icebergs: I’m sure many helium-headed stock investors believe the lilly-livered Fed will turn tail and run from its goal of letting inflation rise as soon as bonds begin to clobber stocks more seriously…. I believe the Fed is more committed than ever to raising inflation as it has been saying it wanted to do for years. “Stocks in Bondage but Fed Not Fazed“ While bond yields had already begun to rise and compete against stocks, the Fed stayed the course, iceberg dead ahead. As a result, longterm bond interest rose even more because the Fed did nothing to jawbone the idea of increasing its bond-buying QE to take interest rates back down (which it accomplishes by purchasing US government bonds from banks to take them off the market,...

  On Friday, Bank of America's also controversial CIO Michael Hartnett prompted the usual firestorm of confused reactions across Wall Street when he concluded that  the "uber-dovish" Fed had backfired and that vigilantes were now bullying Powell into Yield Curve Control  (which he predicted would kick in once the 5Y yield surpassed 1.25%), and also shared three strategies on how to trade this. It turns out Hartnett is not alone in assessing that the Fed has been bullied by the bond vigilantes: in a note from Deutsche Bank's Alan Ruskin titled "10 reasons for Fed not to fight the bond market", the macro strategist reveals "ten important reasons" why assets markets and FX should expect continued Fed aversion to fighting market forces for higher bond yields. In other words, the Fed may well accept higher (and much higher) yields before it all comes crashing down and whether he wants to or not, Powell will be forced into YCC at which point it's pre...

  "Right here, boys!  Right here!  Get your cake, pie, dill pickles, and ice cream!  Eat all you can!  Be a glutton!  Stuff yourselves!  It’s all free, boys!  It’s all free!  Hurry, hurry, hurry, hurry!” – Pleasure Island voiceover, Walt Disney’s  Pinocchio  (1940) Welcome To Pleasure Island! Did you get your stimmy check, yet?  If so, what are you going to do with it? Are you going to park it in your savings account, pay down debt, and pay off a few bills?  Are you going to buy Chinese ‘stonks’, cryptocurrencies, and digital NFT art? What about a new iPhone, fancy dinners, or a plane ticket to Cabo?  How about a new living room rug, a wood pellet grill, or a 75-inch flat screen TV with a sound bar? The collective answer to these questions is the difference between deflation, asset price inflation, and consumer price inflation. Billionaire folk hero Warren Buffett says you sh...

Because Orcs "And as if in answer there came from far away another note. Horns, horns, horns, in dark Mindolluin's sides they dimly echoed. Great horns of the north wildly blowing. Rohan had come at last." Today is going to be dominated by the market pricing in US fiscal stimulus for the  n th time , unless we buy the rumor and sell the fact: and it's rumors and facts I want to address. US CPI yesterday saw headline inflation in line with consensus at 0.4% m/m and rising from 1.3% to 1.7% y/y, but core inflation a tick lower at 0.1% m/m and so dipping to 1.3% y/y. On the back of that, and a moderate US 10-year auction, US equities rose (the S&P up 0.6%); US bond yields dipped, (10s down 6bp from their intraday peak to close at 1.52%); and USD wobbled. The CPI release included a footnote stating: "…data collection in February was affected by the temporary closing or limited operations of certain types of establishments. These fa...

The "wait and see" economy is about to face its moment of truth, and one truth is the $1.9 trillion being passed out like candy is already spent. The defining phrase of the U.S. economy for the past year is "wait and see":  every enterprise impacted by the pandemic that didn't close immediately has been in "wait and see" mode, clinging on to the hope that once the pandemic ends then everything will roar back to life, bigger and better than before. With the promise of herd immunity fast approaching, the moment of truth for "wait and see" is also fast approaching.  The conventional view is that the trillions of dollars in stimulus kept  business as usual  alive and ready to soar back to the good old days. The almost $2 trillion injection of financial smack currently in progress will ignite the afterburners and the economy will rocket higher than anyone can imagine. The problem with this rosy view is the economy was on fumes before the pandemic ...

Next to language, money is the most important medium through which modern society communicates. The Federal Reserve is responsible for signaling how fast this money should be created or destroyed via its federal funds interest rate. When demand is high and capacity/supply low, the Fed should ideally make rates low to support growth of loans to boost capacity/supply. When demand is low and capacity/supply high...the opposite. Instead, the Fed is doing the inverse...trying to focus on getting consumers to use more credit/debt (think record low mortgage rates) to create more demand and necessitate higher capacity (think homebuilders). In a ridiculously difficult chart to decipher below (so I'm told), I highlight the year over year change in working age population (yellow shaded area), year over year change in employees among them (grey shaded area), housing permits (blue line), and the 30 year mortgage rate (white line...driven by the Federal Reserve's federal funds rate a...

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...