A constant theme at NOTES FROM UNDERGROUND has been that the lunacy of Federal Reserve Chair Jerome Powell finding his inner Volcker belongs in the pantheon of fantasy. As I have said before: Paul Volcker wouldn’t be able to find his inner Volcker in a financial system plagued with HUGE amounts of leveraged risk, coupled with a huge overhang of both PUBLIC and PRIVATE DEBT. And yet FED officials are still out there pondering whether to raise 25 or 50 basis points at the next meeting.
I would bet any FED president there will be a pause at the next meeting as the financial system needs to operate with a lag effect to sift through the potential of systemic collapse and I care not a bit about the role of a central bank in a fiat currency world. It was Powell who said at an appearance years ago that the ECB had no credit issues because it has a printing press — the absolute logic of a fiat currency system.
In the last 10 podcasts I’ve recorded with Richard Bonugli, I’ve had two questions: Who has been buying 10-year Treasuries, and why was GOLD rallying as real rates were approaching zero, in relation to overnight/short-term money.
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Now it appears that I guessed wrong on Treasuries. The 2/10 was not inverting because investors were buying 10s. It was that nobody was selling 10-year notes because there were huge losses, if realized (just like Chris Whalen has been writing about).
The GOLD HELD IN BECAUSE ALL CENTRAL BANK CREDIBILITY IS SUSPECT, EVEN AS POWELL PRESSES AHEAD IN AN EFFORT TO REGAIN FED CREDIBILITY. However, the SILICON VALLEY BANK EPISODE BRINGS IT RIGHT BACK TO CENTER STAGE.
MAKE NO MISTAKE, THE FED IS RESPONSIBLE FOR ANOTHER MINSKY MOMENT AS IT KEPT LIQUIFYING THE SYSTEM CREATING THE BACKDROP TO PRIVATE FINANCIAL BALANCE SHEETS BEING LADENED WITH CRAP TREASURIES IN AN EFFORT TO EARN SOMETHING WHILE PAYING NOTHING. It wasn’t INFLATION THAT WAS TRANSITORY but rather the value of of zero risk-weighted SOVEREIGN DEBT.
Powell said he wasn’t pointing a finger at anyone for the rise in INFLATION because he was aware there would be three fingers pointing back at the Powell Fed. Eric Peters from ONE RIVER ASSET MANAGEMENT had a wonderful piece out this weekend wondering about where stops in the market will be. I advise watching the two-year notes for during the recent inversion of the curve the TWO YEARS have been the easiest instrument to short with all the FED HAWKISHNESS.
Do your own technical work for everyone has their own risk parameters. There will be headline after headline about a resolution to SVB but that is not the critical issue. As Dennis Gartman has warned for decades: THERE IS NEVER ONE COCKROACH and for us this raises the question about how the FED will react. This is the critical element. Not a pivot, but a pause mindset.
I discuss all of this with Peter Boockvar of The Boock Report. Click here to listen.