Notes From Underground: How To Deal With Transitory Data

First, thank you to all  who filled in for me as I spent nine full days packing up my life in Chicago. Raising four children and being the repository for many of my loved ones “stuff” resulted in a drowning in memories as well as material possessions that raised questions about what the HELL was that for and why? Our last post was March 1 but I am proud to point out that there were about 74 comments on that entry, all but mine being extremely valuable. Thank you to all for the way you raised the bar for discourse even higher.

On Thursday, I had the pleasure sitting with Richard Bonugli and Daniel Lacalle, one of the most respected macro analysts from Europe. This podcast sums up the vast amount of work I have done while traveling and ruminating after days of arduous labor.

Click here to listen to the podcast.



On Wednesday we heard from Jerome Powell and the FOMC and Powell was busy to avoiding the hard answers so as to not roil the market. Readers of NOTES know I am not a fan of CNBC’s Steve Liesman, but I will give him creditfor asking the most poignant question about when/where the FED will become concerned about the level of yields on the longer-end of the YIELD CURVE. Liesman asked about the use of the tool of OPERATION TWIST. Peter Boockvar, a highly respected analyst, pointed out that the Liesman question was critical but Powell read a prepared statement in response and we both that the chairman ducked and dodged the question. Liesman’s failure to use the phrase YIELD CURVE CONTROL makes me wonder if the FED HAS MADE THE PHRASE VERBOTEN.

After the DOLLAR SOLD OFF FOLLOWING POWELL’S DOVISH PERFORMANCE — REMEMBER, HE MAINTAINED THE FED WILL KEEP SHORT RATES PINNED TO THE ZERO LOWER BOUND FOR THE NEXT 30 MONTHS — Thursday’s trade led to another ATTACK ON THE LONG END OF THE YIELD CURVE AS MARKETS ARE BATTLING THE MOST ASSET CLASS. If the TREASURY is going to issue copious amounts of debt and that is where the FED IS GOING TO DO 80% of its ASSET PURCHASES then market participants, from BUFFET and DALIO to  DRUCKENMULLER and GUNDLACH will attack the long end.

By remaining a slave to its current QE policy, the FED FAILS TO ACKNOWLEDGE IT IS IN A WAR. Powell’s failure to get ahead of the battle takes me back to the late 1960s/early 1970s as the news reports from VIETNAM were all about body counts but Saigon was under siege. Chairman Powell, you may be sanguine but the markets view this as war. Liesman tried to wrangle an answer, but the question remains: At what point does the YELLEN TREASURY/POWELL FED become uncomfortable with yields on the long end? It takes two to TWIST.

I will stress this: We have never been in a position where the LONG END OF THE CURVE DICTATES ASSET PRICES BECAUSE THE FED HAS STRESSED THAT RATES AT AT ZERO UNTIL ALL THE PEOPLE SUFFERING FROM THE COVID ECONOMY THROUGH NO FAULT OF THEIR OWN HAVE BEEN RETURNED TO THE JOB MARKET. Enjoy the podcast.