Faber News Flow

The Federal Reserve's new policy approach is that policymakers want to see "actual progress, not forecast progress" before deciding to change its policy stance. Substantial actual progress is occurring in the economy, some places faster than others. How much monetary accommodation is needed to meet the ultimate employment and inflation objectives is debatable. But it is less than when the pandemic started and less after the passage of $1.9 trillion in federal stimulus. Determining when a policy stance has become too accommodative is not an easy matter—but enabling excessive risk-taking to become well-entrenched is comparable to past policy mistakes by allowing a build-up of inflation and inflation expectations. Both are difficult to unwind, and past episodes have shown it is impossible without triggering significant adverse effects in the economy. Evidence of Actual Economic Progress & Excessive Risk-Taking Employment and Jobless Rate:  In March, payroll employment in...

"Most investors are primarily oriented toward return, how much they can make and pay little attention to risk, how much they can lose." -  Seth Klarman Growing wealth occurs over a long time horizon, including many bullish and bearish market cycles. While making the most out of bull markets is important, it is  equally  important to avoid letting the inevitable bear markets reverse your progress. Making this task much more difficult are extreme market environments and inane investor beliefs at such times. When markets are frothy and grossly overvalued, greed takes over, leading to lofty performance expectations and excessive risk stances. Equally tricky is buying when fear grips the markets. In both extremes and all points in between, we must maintain investor Zen. The best way to accomplish such mindfulness and awareness of market surroundings is to understand the risks and rewards present in markets.  Zen-like awareness allows us to run with the bulls and hide from the bear...

In just a few days, US high frequency economic data will lap March 2020 when the US economy literally shut down and sent all economic indicators in freefall to a degree not seen since the Great Depression (and in many cases, more). When that happens, while March/April economic data will rise only modestly compared to the previous month, it will be a veritable explosion compared to the shutdown a year ago. This is the so-called "base effect" and while many economists will ignore it, especially when it comes to inflation data, the impact for many will be jarring especially when investors see charts that have gone, for lack of a better word, vertical. To preview the annual change base effect that is coming in everything from retail sales, to income and spending, to housing data, to jobs and unemployment, we have pulled some of the most representative real-time indicators available from JPMorgan and Bank of America, starting with what is perhaps the most illustrative chart of all...

Traders across Wall Street and on the buy side are anxiously waiting to see if any more big block trades in names like VIAC, GXU, TME and the other constituents of Archegos founder Bill Hwang's busted portfolio will wander across the tape. As journalists, regulators and academics question how Hwang was ever allowed to take on so much leverage (a question that has yet to be thoroughly answered), Bloomberg reports that  regulators have already started asking prime brokers tough questions about how this was allowed to happen. Bloomberg reported that the prime brokers spent Monday briefing US regulators as Washington starts to dig in into a historic fund blowup that could have broader implications for market stability. According to the report, the SEC hastily summoned banks for meetings on what triggered the forced sale, while Finra, the industry self-regulator, asked brokerages about the impact to their operations and credit risks, people familiar said. "We have been monitoring t...

While we have duly noted the soaring prices in the recent manufacturing and services ISM surveys, which earlier today rose to the highest level since 2008... ... the reality is that these indexes don't do justice to the price panic on the ground. For that we check in on what some of the  respondents were saying in the latest Mfg ISM , which were in a word -  shocking : "Things are now out of control. Everything is a mess, and we are seeing wide-scale shortages."  (Electrical Equipment, Appliances & Components) " Prices are rising so rapidly that many are wondering if [the situation] is sustainable . Shortages have the industry concerned for supply going forward, at least deep into the second quarter." (Wood Products) " Prices are going up, and lead times are growing longer by the day . While business and backlog remain strong, the supply chain is going to be stretched very [thin] to keep up." (Machinery) "Supply chains are depleted; inventorie...

  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...