Semiannual Testimony
In semi-annual testimony to the Senate, Jerome Powell Promised Easy-Money Policies Would Stay in Place.
“The economy is a long way from our employment and inflation goals,” Mr. Powell said in testimony to the Senate Banking Committee, a statement he has repeated in recent weeks. The Fed will therefore continue to support the economy with near-zero interest rates and large-scale asset purchases until “substantial further progress has been made,” a standard that Mr. Powell said “is likely to take some time” to achieve.
Noting that asset bubbles triggered recessions in 2001 and 2007-09, Sen. Pat Toomey (R., Pa.), the top Republican on the panel, asked Mr. Powell if he sees a link between elevated asset prices and the Fed’s easy-money policies.
“There’s certainly a link,” Mr. Powell said. “I would say, though, that if you look at what markets are looking at, it’s a reopening economy with vaccination, it’s fiscal stimulus, it’s highly accommodative monetary policy, it’s savings accumulated on people’s balance sheets, it’s expectations of much higher corporate profits…So there are many factors that are contributing.”
S&P 500 15-Minute Chart
Nasdaq Index 15-Minute Chart
For the technically minded, these gap downs and recoveries are more than a bit troubling.
Also, please note the Very Unusual Move in Mortgage Rates vs the 10-Year US Treasury Yield
What happens when promises of more stimulus are not enough?
If the housing and the stock market bubbles break simultaneously, the Fed will have an enormous problem.
Watch junk bond yields. I expect junk bonds to break first.
Mish
Reloaded my GLD.
And…..stopped out….lol.
The dollar slipped back below 90 last night…but it will probably bounce today.
As the dollar firms up, gold looks to get taken down some more. I am looking for a likely short term bottom to reload my GLD trade.
So Mish are you still in the deflation camp or now preparing for inflation?
Futures expiry in metals today. With the silver bulls foaming at the mouth, I expect gold and silver to get absolutely hammered today. The dollar is firming, barely.
I read this piece on ZH written by one of the WSB guys. One thing does stand out. Lots of silver is being settled in metal rather than the dollar. That does look very bullish. I’m agnostic on the whole “silver squeeze” story.
If gold and silver get pushed down hard and the dollar then decides to roll over, it would look like a buy signal to me. I am watching the 89.4 level to see if the dollar stays above that…It still might be an opportunity to make a quick profit if either metal gets stretched to the downside……but a drop coupled with a clearly weakening dollar would be better, imho.
Sorry Kidhorn. I meant this for a general comment, not aimed at you. Sorry no edit.
The metals got hit, but the dip sure got bought. What a great bounce, especially in silver.
It will be interesting to see if metals get hit again later, like at the open of the Globex, or in the overnight tonight. With the expiry ending, my guess is no more today.
Every time King Dollar slips, gold and silver try to make a move. Today looks more bullish than I expected.
That was why I stopped reading ZH, must have been about 15 years ago; they were promoting the idea of a silver squeeze that would wipe out JP Morgan. Obviously, it hasn’t happened yet, and even the spike to $38, or whatever it went to, didn’t cause one. Yes, in theory if they are short silver today, held against silver purchases 3 months from now, they could be faced with a problem in the short run if people demand metal, but I’d rather bet that they know what they are doing, rather than that ZH knows what JPM is doing.
I do happen to be long both gold and silver, but hearing that ZH is pushing the short squeeze theory makes me nervous.
The fed will never normalize rates or stop asset purchases. Maybe they would after a complete collapse of USD and we’re all trying to grow food in our backyard to stay alive.
Around here, there’s a clear housing bubble. My neighbor just sold their house in a day for $25k over asking. Everything on realtor.com in my zip code goes from available to contingent in a matter of days. I would sell but then I would have to buy. So I would just end up paying a lot of commissions and I never want to rent.
The same here in Belgium, I plan to ask a real crazy price, if a fool is willing to pay I dont mind paying rent for some time…. till prices eventually fall apart, which they will, a couple of years from now, ….
Powell and the Fed can talk all they want, and confidently profess that they are in control, after all it is a confidence game. But the reality is that the Fed always follows the bond market, that’s really what controls yields.
As a result, that is why I believe that yield curve control will be a reality in the not too distant future, and that over the coming years, the Fed’s balance sheet will double, and then double again.
In ancient Greece, the rich paid more taxes, voluntarily, for status and political advantage.
Yes, Mish, I am reading Daylight Robbery. I made it up to the execution of Charles I before I nodded off. Great book…..and it would make a fine companion piece for Niall Ferguson’s Ascent of Money.
The American dream is now in Denmark
A conversation with Danish businessman Djaffar Shalchi about why he wants to make rich people like himself pay more in taxes https://the.ink/p/the-american-dream-is-now-in-denmark
Djaffar Shalchi…..well, that sounds like everything…. but danish…
Jerome has such a calming voice. I thought it was just me, but looks like the markets also find it soothing.
“So there are many factors that are contributing.” and all of the other factors come from the same underlying easy money policies, because there certainly wouldn’t be any stimulus otherwise, or extra “savings” when the economy shrunk.
“If the housing and the stock market bubbles break simultaneously, the Fed will have an enormous problem”
If this happens it will become someone else’s problem, not the Fed. Either congress and/or general public. Fed has and is doing everything they can in their limited toolbox.
I’d expect stocks to break first…RE is more sensitive to the fall-out of the stock market crash….i.e. the resulting recessions or depression.
People don’t sell houses to meet margin calls…..the way they sell gold and bitcoin….but housing will not escape a huge deflationary event. They sell houses because they lose their job.
A stock market crash is certainly not out of the question…and liquid assets of all kinds will go down with stocks, especially considering the current level of leverage. It will probably instantly put a top in the housing market….because credit will get harder to come by. jmho.
I expect Junk Bonds to break first – Should have mentioned that in the post and will add it now
I certainly wouldn’t argue with that….I just don’t expect housing to fall as quickly as stocks will…..investors only own 11% of the housing market to start with. That’s at a high, but it isn’t going to crash the market if Blackrock decides to lighten their load.
As an investor I don’t start to worry until people start leaving town to find work somewhere else. In the 80’s that was huge here….prices fell a lot. Rents fell.
But I don’t think that will repeat. The market here has changed in fundamental ways.
In 2008, rents in Austin famously held the line and didn’t even fall….at all. The housing market softened….I bought the bottom in 2009. It was great.
The hardest part was get financing as a little guy just after the bust. The mortgage underwriters had some rule for a while…..they wouldn’t let an individual hold more than four properties with mortgages. So I took equity out of my personal house to make it work.
By 2011 the appreciation and high demand was well on the way again.
In Cali it’s different. Winners and losers, always…in RE.
“People don’t sell houses to meet margin calls.”
People don’t but companies do and if they can’t roll over their loans then they sell. It’s more a concern this time around than before because some large groups have been heavy into the residential real estate this cycle.
That’s private equity money, for the most part. I’d expect companies like Blackrock to hold properties in the good markets for the long haul. Even hedge funds can’t sell houses fast enough to meet margin calls, anyway….
It’s a trade-off they made when they went long rental RE. I think investors of that stature will be able to meet their margin calls without having a fire sale int heir RE Owned departments
I hope you are right. You know real estate much better than I. I own some but it’s not my preferred method of increasing my wealth.
Relax Powell to the rescue. https://www.youtube.com/watch?v=RmhITOnAolU&ab_channel=PePPeMusic