U.S. TREASURY YIELDS PRIMED TO CASCADE INTO NEGATIVE TERRITORY

Headline:
Real Fed Policy Objective = Sustained Asset Price Maximization.
Easy Money” = The Only Pathway.
Obsolete Inflation Obsession = Farcical Rationale For “Easy Money.”

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One Of The Most Paradoxical Concepts…With Respect To S&P 500 Equity Prices = There Is No Consistent + Meaningful Correlation To Domestic GDP Growth.

And In An Era Of Global Markets…It Indeed Makes Some Sense…As Companies Can Sell Their Goods And Services Just About Anywhere On The Planet.

So…While Domestic Demand Certainly Matters To ALL U.S. Businesses…It Matters Much Less To U.S. Multi-Nationals…That Can Augment Domestic Market Dynamics With International Opportunities.

Combined With Acute Skill At Reducing Equity Share Count + Cross Border Tax Minimization Strategies It Has NEVER Been Easier For Multi-Nationals To Grow Earnings + EBITDA Per/Share Far In Excess Of Muted Revenue Growth.

And If That Does Not Work…Just Re-Define Financial Statement Metrics i.e. Non-GAAP vs. GAAP.

And If That Does Not Work…Just Purchase Your Customers While Burning Investor Cash i.e. NFLX…Despite Little Hope Of Future Profitability.

And If That Does Not Work…Just Make A Dramatic + Large + Pricey Acquisition Or Divest/Sell An Under-Performing Division  To A Well Funded Private Equity Giant.

No Matter…Investors Will Throw Money At Almost Any Business With A Pulse…Adhering To The “Soft” Instructions Of The World’s Central Bankers…As Stratospheric Asset Prices = Primary Directive…Fueled By The Easiest Money In Global History.

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Nevertheless…There Is Still An Obsession With Domestic Economic Growth…As It Primarily Drives Organic Interest Rate Policy…Which Meaningfully Impacts Equity Valuations…And Lower Interest Rates Generally Push Up Valuations For Riskier Asset [Equities + Real Estate] And Vice-Versa.

Currently…It Appears U.S. Interest Rates Are Heading Far Lower…As The Capital Markets Now Instruct Fed Policy Makers…Seeking To Catch Down To Negative Rates In Both Europe + Japan…Hoping To Finally Stimulate Legacy Based Inflation…Despite A Decade Of Miserable Under-Shoots.

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The Only Real Question Remaining…

How Low Can Interest Rates Really Go In The United States?

The Mathematical Answer = There Is No Downward Limit.

But It Seems That Even The Globe’s Most Dovish Central Bankers [i.e. Kuroda + Draghi] Believe That Negative Interest Rates At/About…50 Basis Points …Present As Some Psychological Limit …That The Masses Just Cannot Accept Anything Less…Even Though Those Same Masses Are Already Being “Tarred + Feathered + Shamed” As Irrational Savers.

So…Rather Than Lowering Rates Deeper Into Negative Territory When Below The Zero Bound…Draghi And Kuroda Ditch Their Interest Rate Playbooks And Pivot Toward Quantitative Easing…Further Diluting Their Currencies…Primarily To Stimulate European + Japanese Export Competitiveness.

These Policies…In Far Away Lands…Do Impact The U.S. Economy…As 2019 Money Instantaneously Moves Around The Globe In Search Of Yield…And Donny T. Knows It.

In Particular…U.S. Treasury Yields Offer A Beacon Of Positive Yield In A World Where $12T+ Of Sovereign Debt Yields Negative.

Of Course The U.S. Dollar Holds Firm In The Face Of Euro + Yen Diluting Policies…Which Seems To Really Piss-Off Donny T…Even Though QE + ZIRP Were Promoted…And Liberally Executed…By U.S. Central Bankers Too.

Still…With The World Drowning In Excess Money…Desperate For Positive Yield …There Is No Sustained Inflationary Impulse.

What To Do?

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Maybe It’s Time For Powell And His Paralyzed FOMC Compatriots To Change Their Tactics…Stop Ruminating About Muddled U.S.  Economic Data + Aggressively Act.

They May Attempt To Decisively Stoke Inflation As A Clever Diversion While Covertly Promoting Their Primary Objective…Igniting + Increasing Asset Prices Ever Higher.

How About They Shock Us All And Strap On A Huge Sack?

As In…Immediately + Steeply Going Negative On Interest Rates …Boldly Skipping Past The QE Playbook At Zero.

How Far Negative?

Might As Well Start At -5.00%…A Good Round Number.

The Consequences = Draghi + Kuroda Currency Depressing Policies Are Immediately Neutered + The U.S. Dollar Gets Slaughtered…Appeasing Quasi Fed Chair Donny T.

Further…Stocks + Real Estate [the real inflation recipients] Go “Full On” Parabolic As Unemployment Tumbles Further Toward 0%…Ensuring A Trump 2020 Presidential Victory.

Investors Then Begin Paying The U.S. Treasury To Hold Their Money And Suddenly…Soaring U.S. Sovereign Debt Becomes An Enormous Source Of Positive Cash Flow…Eroding Massive Fiscal Deficits…America Would Be So Great…AGAIN.

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But What If This Tactic Backfires + Does Not Produce The Idealistic Results Postulated Above?

At Least Powell Might Finally Realize That Lower Interest Rates Are An Impotent Antidote To Legacy Based Inflation Measures + That The Archaic 1977 Congressional Mandate He Frequently Cites…Authored During A Period Of Hyper-Inflation…Is Now A Meaningless Legislative + Political Relic.

Contact The Author: Dominate@GlobalSlant.com

U.S. INTEREST RATE EXPECTATIONS SET BY KING TRUMP…NOT FED CHAIR POWELL

Headline:
Donny T. = Quasi Fed Chairman
Powell + FOMC = 100% Irrelevant

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Just About 6 Months Ago Fed Chairman Jay Powell Prepared The Financial Markets For 2-4 Interest Rate Hikes In Calendar ’19…And The Fixed Income Market Digested His Fed-Speak And Re-Priced Appropriately. 

As It Were…This Was Powell’s Last Stand.

Now…Half A Year Later…The Bond Markets Have Sharply Reversed And Are Pricing In 2.5 Interest Rate Cuts By New Years Eve ’19.

That = An Enormous Pivot In Such A Short Period Of Time…So What Gives?

Basically…Donny T. Has Snatched Control Of Interest Rate Policy Away From The Federal Reserve By Publicly Challenging And Chastising Their Tactics…Essentially De-Legitimizing Powell.

And Surprisingly…Powell Has Politely + Simply Acquiesced.

Furthermore…This Policy “Pivot” Has Not Much To Do With U.S./China Trade Dispute…Despite A Calculated + Coordinated Fed-Speak Message To The Contrary…Likely Advised + Crafted By The Prez.

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At This Point It Is Quite Clear That Powell’s Position As Chairman Of The Federal Reserve = Too Big For Him.  And I Don’t Mean The Mass Of Data Analysis And Interpretation.

I Mean…The Lack Of Rhetorical Counter-Punching Back At Prez. Donny T…As Powell Willingly Absorbs Twitter Jab After Twitter Jab…Knees Buckling…Ready To Fall To The Canvas…Waiting For The Inevitable Knock-Out Blow To The Jaw…Seemingly Eager To Admit Defeat.

Powell = Just Too Malleable + Soft…Bleeding On Trump’s Command + Cowering To Trump’s Demands…Which…Unfortunately…Fits The Well Worn Script Of Trump Hires.

You See…Donny T. Typically Does Not Select Strong + Talented Candidates …Paradoxically…He Usually Chooses The Weakest…So That He May Easily Humiliate + Intimidate His Appointees If They Do Not Strictly Adhere To His Wishes i.e. Former Attorney General Jeff Sessions.

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So Donny T. Wanted Lower Interest Rates And Now He Has Them….As Most Of The Yield Curve Has Already Bowed And Obeyed…Despite No Official Rate Cuts By The Fed.

Specifically…Since December ’18…The Yield Curve Has Flattened + Inverted From 1 Month To 10 Years…Despite A 38% Yr/Yr Increase In The U.S. Budget Deficit…Increasing The Supply Of U.S. Sovereign Debt Issuance.

For The Fed The Easiest Way To “Un-Flatten + “Un-Invert” The Curve…And To Dismiss The Recessionary Concerns That An Inverted Yield Curve Historically Suggests…Is To Slash Short Term Interest Rates.

Naturally…The Fed Will Cave…They Always Do.

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Nevertheless…Many Legitimate Economists Question If The Fed Should Actually Cut Rates = Which Is Quite Reasonable…As U.S. Economic Data Has Held Up Relatively Well…Thus Far In 2019.

Unemployment Is Near A 50 Year Low…Jobless Claims Are Also Near A Historic Nadir…And…Ironically…Inflation [as measured by The Dallas Fed’s Trimmed Mean PCE] Is Steady At/About The Fed’s  2.0% Target…And Has Been So For The Prior 6 Months. 

BTW…Powell Has Recently Cited This Measure As His Preferred Inflation Metric.

Still…Very Few Economists Question If The Fed Will Cut Rates…As They Too Realize That The Fed’s Power Was Recently Seized By 1600 Pennsylvania Avenue. 

To Powell’s Embarrassment…The Markets Have Endorsed The Seizure.

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The Timing Of The Inevitable Rate Cuts?  Just About Anytime…As The Fed’s “Credibility” Has Already Been Annihilated.

The Only People Who Do Not Recognize This Destruction In “Credibility” Regularly Meet In DC’s  Eccles Building Every 6 Weeks To Discuss U.S. Monetary Policy/State Of The Economy.

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The Fixed Income Markets’ Message To The Fed Is Quite Blunt…

“Donny T. Sets Interest Rate Policy Now. Your Job Is To Simply Follow His Lead + Rubber-Stamp His Points Of View.  However You Wish To Position And Rationalize This Instructive …So Be It.”

Recall That Trump Already Bullied The Fed…Earlier This Year…Into Quickly Halting The Modest Balance Sheet Run-Off…After Years Of Contemplation + Study By Fed Officials.

Powell’s Sudden Policy Backtrack…On A Strategy That Former Fed Chair Yellen Characterized As “Like Watching Paint Dry”…Permanently Signaled Powell’s Lack Of Positional Fortitude…AKA…He Folds Easily.

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So It Seems Trump Is In Total Control Of The FOMC…Despite His Over-Simplified Conclusions As To The Complex Interplay Of The Global Capital Markets.

Plus…Assuming Control Did Not Take Donny T. Too Long Or Too Much Effort…Just A Series Of Sharply Worded Tweets Over 4-5 Months + An Early February Steak Dinner At The White House With Both Fed Chair + Vice-Chair Powell And Clarida Respectively.

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So King Trump Wins Again…This Time…Versus The Easiest Of All His Adversaries.

Powell Likely Would Have Fallen Backwards From Just The Slightest Breeze Initiated By A Blow From Donny T.’s Lips.

The Tweets + Steak Dinner…A Colossal Waste Of Twitter Capital + Quality Beef.

Contact The Author: Dominate@GlobalSlant.com