#130: My Pal Powell

S2N Spotlight

I like Jay Powell. He comes across as quite humble. He comes from the commercial world and is not an academic in love with a theory. He comes across as quite timid. However, I loved the way he ignored Trump when Donald was giving him heat about raising rates. He continued to fight for the Fed’s independence from political influence. Maybe he is not as timid as he looks.

In Australia, the ruling Labour Party is trying to amend the laws governing the Reserve Bank of Australia. Treasurer Jim Chalmers is trying to legislate that he and his successors can overrule the RBA’s rate decision in “extreme” circumstances. Heaven help us if we give a ruling politician the ability to overrule the governor.

See below the last 6 Fed tightening cycles for length and magnitude of increase. Next time, I will show a before and after with the S&P 500 returns.

I have shared this chart below on a number of occasions. I have added a measure of the gap between the Fed Funds Rate and the 2-Year Treasury Yield. The largest gap was recorded in 2008, and we are currently very close to that all-time high. The 2-Year is the best central banker in the business, usually forecasting the Fed rate more accurately than anyone else in the business.

Jay is doing his best to engineer the mother of all soft landings, and if some of the numbers coming out these days are to be relied on, then he may just do what Captain “Sully” did landing in the Hudson with a near-perfect landing. So rates are coming down and the stock market is rallying in anticipation. Is there any more good news that the market has not discounted?

S2N Observations

Hat tip to Guilherme Tavares, who gave me the idea for this chart. I think the comments on the chart say it all.

Another chart I have shared before is the Dow Theory non-confirmation from a few months ago. I am not going to go into the details again, other than to say that Richard Russell, the legend, would be smiling and wondering with anticipation.

I am feeling a little benevolent today, so I took the time to show the non-confirmation of Dow Jones Transports. One can argue if these 2 indexes are still relevant. Good question.

A few weeks ago, I jumped on the bandwagon, slicing and dicing the comparative returns of the S&P 500 market cap index and its equal weight index. The deviation was quite extreme, and the magnificent 7 meme was in full swing, so I do believe there was a signal in that anomaly. Well, what do you know? The 2 indexes meet again.

Why the gold miners are lagging so far behind gold is a bit of a mystery to me. The World Gold Council believes there are another 50k–60k tonnes of gold to be mined on top of the 200k+ tonnes mined in history. Could the safe haven attraction account for the premium? Surely the miners are a cheap option on the spot price. I don’t understand miners so I am just asking questions.

I am not sure what to make of this, but Kamala Harris has just endorsed Biden’s Capital Gains Tax Rate. I am drawn to extreme moves. This is a signal.

Performance Review

Chart Gallery

News Today

The post #130: My Pal Powell appeared first on Signal2Noise.