“Senator” Powell Played Politics All the Way

Hey There Income Hunters,


J-Pow is the greatest political Fed chair since Alan Greenspan.


And it was absolutely hilarious watching Greenspan speak out of both sides of his mouth. 


He admitted after leaving the Fed that his goal was always for people to walk away not really sure what he said.


Powell must have taken lessons from him because he came out like a man who was extremely concerned about inflation – which most of the panel was – even though he spent six months saying inflation was transitory and not to worry about it


Well at least he toned down the hawkishness yesterday and gave the market a nice reprieve from the correction. 


Today, we’ll take a look at the clues we can take away from the market’s reaction and what to expect in the weeks ahead. 


He Said What?


I thought one of the most significant things J-Pow said during the confirmation hearing was his reference to the economy no longer needing highly accommodative policies. 


Another play on words … I would agree, if Covid is finally over and the global economy strengthens, he may be correct – but that is a big IF.


Let’s face it, the “real economy” has been weak for 20 years. We are a financial market economy.


Now, you would think the Fed chair understood this fact.


And of course he does, he just needs to continue trying to brainwash Americans into thinking everything is fine and dandy.


The Treasury yield curve is a very good predictor of the path the economy is on, so we can find the clues we need there.


When the yield curve is flattening, meaning long rates are going lower relative to short rates, the signal is that the economy is weakening. 


This is due to the fact that if future economic growth is expected to decelerate and interest rates will have to be reduced to incentivize consumers to borrow and spend. 


Let’s take a look at the 10-year rate minus the 2-year rate as the curve barometer. 


Notice the red circle in the above chart that highlights the financial crisis of the late 2000s.


Prior to the market collapse, the 2yr-10yr spread inverted and this is an very important sign for the markets. An inverted curve signals an economic recession is coming anywhere from 6-18 months. 


When the stock market gets this signal it plummets. After the curve inverted, the market went down more than 50%.


In Oct 2006 the curve hit -.20% and in January 2008 the market rolled over and headed straight down until March 2009. 


Small Businesses Tell the Same Story


Small Business accounts for 44% of economic activity in America.


We know they were decimated in 2020- 2021 and may never fully recover. 


Here is business owners’ opinion about expectations for the economy to improve:


We are talking about all-time lows for expectations of the economy to improve!

 

This is the sector of the economy that is involved in economic activity day in and day out. I would say this survey and the yield curve are two of the best forward-looking indicators of economic activity. 

The bottom line is Jay Powell knows this but he must put on a happy face and look for his first chance to bail on the rate hikes and get back to doing what he does best – print money!


Bring It Home


Make sure you join Mark, Andrew, Licia, Frank me on Thursday when we will open your eyes to great trades to capitalize on where the markets are going in 2022. 


It’s TradeFest – and it will be awesome.


We will be providing insight into the great trades from 2021 and a look ahead to what we believe will be an incredible year to trade aggressively across many asset classes as the Fed attempts the most difficult balancing act of all time.


I look forward to seeing you there and provide a lot more details on what I expect the Fed to do this year and how you can maximize your profits by getting out in front of the most powerful money flows in the world.


Until then …


Live and Trade With Passion My Friends,


Griff

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