Stop Asking For A Pivot, It’s Unbecoming… | QPOL Issue #28
Why the Fed won’t pivot, for the gazillionth time...
If you weren’t paying attention, this week was FOMC week. We had our CPI print and Powell raised rates by 50 bips as expected. Markets rallied with news of inflation ticking down to 7.1% CPI. Then they rallied with anticipation of “dovish” announcement of 50 bips instead of 75.
As I’ve said multiple times, this activity only gives Powell more of a reason to keep raising rates. The markets can handle them.
Meanwhile, Fed tightening is re-pricing real estate to its proper and appropriate value. Below is my friend kst. She works in Californian real estate.
Understand that the Fed’s true Achilles’ heal is the ECB/ODM (offshore dollar markets). Raising rates/wrecking those markets to cause capital flight to US is the goal. This is possible because the Fed is on SOFR now, not LIBOR. Offshore dollars are still indexed to LIBOR. By raising rates the Fed bankrupts these ODM markets and gains back its monetary independence.
Printing Isn’t the Only Option
Oh good. Another “Inflation is the only way out” conversation. Don’t forget capital flows and the Fed needing to keep the dollar the cleanest shirt in the dirty laundry. There are multiple ways of doing this. It’s not by “printing more money.” They won’t “print” more money until the savings rate is high enough and until inflation is 2%. Sending capital into the US is ultimately how the Fed maintains its credibility.
For all the Bitcoin maximalists out there, yes. All paths lead to Bitcoin, sure. But which path would you rather take? A gradual transition, or an inflationary depression that results in Mad Max?
Consider the following (the rational/gradual/realistic approach): If you back US treasuries with Bitcoin and/or gold/basket of commodities like BRICS is doing, this causes capital flight to the US.
Why? Because if you issue those bonds at 50 and 100 years and have 5% of that coupon paid in bullion and/or Bitcoin, the appeal in buying US sovereign debt skyrockets and the yield curve flattens. Plus if you cut Federal spending on wasteful government programs and pork, you only increase the credibility of the Fed and the US economy. No deficit spending means more trust in the US government and they’ve clearly abandoned the slogan “debt is money we owe to ourselves.”
That’s how you fix the deficit. That’s how you balance the budget. Congratulations, you’ve now become the cleanest shirt in the dirty laundry and have been upgraded to mere grass stains instead of shit stains. In comparison with every other nation in the world, I’ll take it.
Debasing the currency is literally retarded and undoes everything the Fed has worked so hard to do. Due to Powell’s monetary policy, this does not reflect that happening. Opting out of what the Fed is doing is retarded and a fool’s errand. If you fight the Fed, you’re fighting reality. You’ll lose that fight. Don’t fight the Fed.
The truth is that there are plenty of morons out there in the finance/alt-finance world that are in denial because they can’t grasp that the game has changed. The Fed truly is off the reservation and will no longer be the buyer of only resort for the world. Those who think otherwise seriously need to update their thesis or else they’ll have fun staying poor.
Printing money is antithetical to what is happening right now. It would behoove all of us to not hope this be the case. Why? Because the Fed then loses all credibility and eventually defaults in its debt as people lose confidence in the financial system as a whole. Money might flow into safe haven assets, but it would be a Mad Max scenario.
Don’t Expect Rate Cuts Any Time Soon
Many in the financial/Bitcoin space just assume they're gonna do the same thing they do every single rate cycle: Raise until they meet their goals and completely break markets and then rev up the printers again.
The details here matter though. They will only start cutting rates once the savings is above 7.5% percent. Why? Because if you look back in history, a savings rate that high is typically when QE kicked in. They do it because at the end of the day, they’re still Keynesians. When they see people’s savings are up they’re gonna incentivize that money to move by doing slight cuts because “people are HoArDiNg.”
Regardless of if or when they cut rates, they will certainly hold them for much longer periods of time much higher than they have in the past. “Zero-Bound” is out of the Picture. Powell is working to break the Fed Put and bring trust back into financial markets by letting them work properly and unencumbered by central planning low interest rate policy. Below is a forecast of where they see interest rates over the next few years.
The FFR will now reflect actual market activity strictly domestic to US markets. Not manipulated LIBOR at the city of London. We’re on SOFR now, and Powell is gonna end the Fed Put. This way, zombie companies will die and capital will be properly allocated to business that make sense and the market truly demands. This is why Powell is my pal and should be your pal too.
It’s all based on the incentive of preserving the power of the Commercial banks and maintaining the creation of private capital. EU globalists and CBDC’s are the opposite and that’s why they won’t happen in the US.
So, stop asking for a Fed pivot because it’s unbecoming and it’s clear that you haven’t thought through all the scenarios …put down both the copium pipe and the doom porn. There won’t be a pivot. This is the reality which you live in.
~ Phil Gibson
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China and Japan dumping US Treasury bonds:
https://www.zerohedge.com/geopolitical/2-largest-foreign-holders-dumped-us-treasuries-october-record-equity-outflows
That doesn't seem like good news for the dollar.