Housekeeping: on most Sundays Founders attend a zoom discussion to discuss the markets from several angles in context of context of that week’s CFTC Report. Most topics are fair game. That recoording is then shared with Premium Subscribers.
Note: This week’s two hour+ session enjoyed a very active discussion with multiple topics covered. The CFTC discussion itself was almost an afterthought. Here is an outline of topics discussed. Transcript has timestamps for topic search.
Comparison Between Fed Chairmen
Discussion comparing the actions of Arthur Burns and Paul Volcker, particularly in regard to their handling of inflation.
Speculation on whether Jerome Powell is more like Burns or Volcker, considering Powell's potential to follow a similar path.
Reference to Burns' public lectures blaming external factors for his inability to control inflation, echoing current economic trends, including stimulus-driven entitlement culture.
Inflation and Entitlement Culture
The emergence of an "entitlement culture" following welfare programs and stimulus checks, leading to reduced labor participation, and how it parallels current COVID-era policies.
The belief that inflation control is hampered by this societal shift.
Reference to COVID stimulus checks creating a similar sense of entitlement, leading to speculative behavior (e.g., gambling) due to stagnant wages.
Tne Lecture Discussed is footnoted1
1970’s 2020’s Side by side comparison: The 1979 Inflation Lecture That Scared Paul Volcker- Analysis
Speculative Behavior and Gambling
Commentary on how stagnant wages are driving workers and even retirees to gamble as a means to supplement income.
A distinction between working-class individuals and young people coming out of college, with the latter having extra money from stimulus payments.
Speculation about the effects of this on financial markets and the Fed’s policies.
Environmental Concerns and Inflation Control
A mention of the environmental movement during Burns’ era and the added costs of regulatory policies.
Comparisons to current investments in green technologies, suggesting parallels between the 1970s regulatory spending and current green energy transitions.
The Federal Reserve's Strategy
Detailed analysis of bond market behaviors, especially around yield curve steepening and its impact on inflation expectations.
Powell’s potential strategy of letting long-term rates rise to curb inflation, compared to Volcker's aggressive rate hikes.
Speculation on Powell’s concerns about easing too soon, possibly aligning him with Burns’ inflation mismanagement.
Modern Financial Dynamics and Term Structures
Detailed explanation of bond yield behaviors (bull and bear steepening), term structures, and market reactions to Fed policy shifts.
Examination of how changes in short-term and long-term rates impact stocks, bonds, and inflation perception.
The impact of Fed decisions on the behavior of long-term bonds and how traders react.
Financial Instability and Yield Curve Control
The concept of yield curve control (YCC) as a tool for managing inflation, with potential consequences if applied incorrectly.
A deeper discussion of whether Powell can balance inflation control with economic stability and the risk of easing too soon.
Prediction that long-term bond yields could spike if Powell miscalculates, leading to further market instability.
Market Behavior Post-Interest Rate Cuts
Analysis of how markets react to rate cuts, particularly how they could drive stocks up while long-term bonds fall, creating an inflationary scenario.
The dynamics between stock market rallies and bond market declines, and how investors may shift portfolios in response to perceived inflation.
Geopolitical Influences on the Bond Market
Consideration of global geopolitical factors, particularly the role of China and other nations in the U.S. bond market, and how foreign policies influence the Federal Reserve's decisions.
A speculative argument that Powell's decisions are not solely based on U.S. domestic concerns but also global economic pressures.
Our Conclusion:
