Is three weeks a new record? That’s about how long Jay Powell’s performance bought him across most major markets. It was May 17, a Sunday night, when he appeared on 60 Minutes and, pardon me again, lied his ass off. One right after another, starting with the most obvious falsehood that his gang at the Federal Reserve “saw it coming.”
It’s hard to square that claim with one bungled measure after another, the central bank’s full “rescue” operation nowhere near what it was in early March by late March. If Powell saw it coming, then why didn’t they have everything ready to go in late February? Why not January? The FOMC still had its upper bound fed funds target set at 175 bps as late as March 2.
The Fed Chairman can’t have you remember it that way because, quite simply, risks abound. He needs you to believe that his institution performed splendidly, even to the point of saving the world yet again. If you buy that, then when confronted with the same negative case in the perhaps near future, maybe you won’t be as panicky this time around.
What most people took away from Powell’s 60 Minutes act, however, was the words “digital printing press.” Oh my, how that played over and over, the world abuzz about the first Fed Chairman who admitted to being kinda reckless about it (thanks, always, to M. Simmons for properly, beautifully doctoring the below screenshot). Flood of dollars and money, hell yeah!
Over the next several weeks, from May 18 (the Monday after) until June 5, even the bond market was drawn in by the puppet show drama. Yields at the always-troubling long end jumped, culminating in a noticeable spike up to June 5.
June 5, you might remember, was Payroll Friday; that Payroll Friday. The BLS had shocked the whole world even more than it was after being spun around by Powell, the government reporting a massive, record-sized gain in US payrolls where analysts had been expecting another historic loss.
At that moment, early on that Friday, it did seem like Powell was on to something. Inflation, rebound, recovery, and not just back to normal, maybe even better than normal. Suddenly, the mainstream media’s timed rush of stories about the yield curve appeared spot-on for once. Having hated on that very thing for years as it contradicted their story, as told to them by Jay Powell, about globally synchronized growth, it was to be celebrated as finally conquered by that very digital printing press.
The 5s30s, in particular, became as if a celebrity as the selloff behind it raged toward that long longed-for BOND ROUT!!!!
It was a decent enough story to the untrained ear but never very plausible. That’s why the hysteria didn’t make it beyond that very payroll report. Ever since, starting Monday, June 8, the yield curve has been flattening down toward record lows rather than steepening into the fires of monetary excess. Sparking a brief discussion about yield caps and yield curve control, where’d all that go?
Demand for the safest, most liquid instruments has instead run right back up to where it suggested the world was right back down again. A true hysteria, this one, another, only lasting weeks despite the massive whoppers Jay Powell had uncorked no doubt expecting a whole lot more from them.
What Powell was really riding was reopening ecstasy, the idea that maybe getting things back up and running sooner than many had been thinking would make a tremendously positive difference. The Fed Chairman aimed to transform that survivor’s euphoria (which I wrote about on June 3) into a more lasting inflation hysteria (and finally, if all went to plan, convert that into actual inflation).
The labor market numbers, being so far out of line, however, seem to have sparked some badly needed scrutiny. Balanced against jobless claims that were being drawn as if from some completely different economy, the idea that reopening necessarily equals recovery very quickly lost a great deal of its prior cachet.
Jobless claims weren’t the only worrisome conflict, just the most damning and undeniable. And if they proved to be valid, as they seem to be, then the payroll report wouldn’t have amounted to anything meaningful, leaving Powell’s plan for inflation hysteria stranded on the rocks of potentially only half a V.
Over the near-two months since that Friday early in June, the half rather than whole has gained credibility. Even in the stock market, for that brief hysteria in late May and June, seemed destined to put 1999 to shame (which, by the way, the NASDAQ actually has done, so congrats to Mr. Powell for sustaining only that one thing).
The problem with placing all your chips on such euphoria is obvious; like 2018’s boom that never boomed, eventually the hysteria had better pay off – or else. In 2018, that was mid-year becoming the landmine. It had better show up somewhere (outside of FAANGs).
While it wouldn’t have hit the CPI or PCE Deflator straight away, not even the slightest hint has registered in either one; thus, the view of the world and these increasingly dire probabilities as told by TIPS. The guy lied his ass off, and for what?
The mainstream media coverage continues to be glowing, and the misinterpretations of gold and DXY may offer him some minimal comfort, but Jay Powell’s got to be thinking to himself, now what do I do? The partial answer, indicating he’s out of answers, is the joke that is “symmetry.” And then this week’s promise to keep doing the same things for…ever.
Japan, in other words. As I wrote the other day:
If, or probably when, the stupidity is revealed as having never been anything more than that, if another wave of economic or financial (collateral bottleneck) trouble grows too obvious to ignore, that’s when we’ll see UST demand overwhelming again which should, in my view, push maybe most of the yield curve into negative territory.
We’re a hair trigger away from negative nominals, not runaway inflation.
Even during those glorious (if you’re a Powell cultist) three weeks, it was never anything more than that. It’s why they call it gambling. That’s not how it’s always written up in all those textbooks, of course, this Greenspan put, but that’s all it ever really was.