Comments on the Fed and Markets.

Fade the consensus...

Good morning and Happy Friday.

U.S. markets are closed today, so I want to get a quick note out ahead of the long weekend:

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THOUGHTS ON THE FED

Following this week’s FOMC meeting, a lot of people on social media have been posting opinions regarding Fed chair Warsh’s first press conference.

Avoiding the noise, I’ve been quietly watching markets, and comparing the hot takes being circulated — particularly on X.

It hasn’t even been 48 hours since the FOMC meeting, and most comments have aged like milk on a hot summer day...

The biggest consensus of all: an army of tourists predicting “higher rates volatility” with the new Fed.

Believe it or not, people are making predictions for higher rates volatility in the coming years… based on 1.5 days of market movements.

*Note some of these folks also called for buying S&P Puts at the June lows, and buying long-dated Oil at this year’s highs.

This flash-consensus reveals a market with extremely negative sentiment on Bonds…

Related: the long end is rallying while short-term rates are anchored.

I think this continues, because (1) that’s what trends do, and (2) our models indicated the 10YR Yield likely made a significant turn (this is a big deal, and few investors are prepared for it).

Important to never forget:

Under Powell’s watch, rates volatility was the highest since the 2008 global financial crisis.

Inflation hit 9%, the highest in 40 years.

And the damage could have been entirely avoided:

In mid-2021, I was extremely worried about higher rates and inflation, and began building a portfolio around assets with low/negative rates correlation.

When I posted that tweet in July 2021, the 2YR was at 0.2%:

The 10YR was at 1.25%:

The rest was history.

Looking back today, by nearly every metric, this was the worst-managed Fed of all time.

Surely it will be tough for any new Fed chair to do worse?

Either way — it’s probably best to ignore predictions… on rates volatility, or anything else.

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The good news:

At 114 words, this was the shortest (and best) FOMC statement in a long time:

*Chart from Michael Kantro at Piper.

Total number of sentences in this week’s FOMC statement: 8.

Count me as a Kevin fan from the beginning…

Maybe in time he can reduce the statement to just the last sentence:

“The Committee will deliver price stability.”

Works for me.

Big picture:

I think the Fed will end up not hiking this year, after the full range of data is released and incorporated over the next 6+ months. But that’s a topic for another day…

Which leaves us with the main event:

The Dollar vs. Gold.

I’m working on an important update to our SPECIAL REPORT ON GOLD, scheduled for publication soon.

We’ll also touch on Semiconductors, Memory, and related trades which continue to dominate the daily conversation:

Many have asked me “when to Sell/Short”, meanwhile I’ve been watching and waiting for the right moment — and think when it comes, it should be quite clear.

Speaking of which, KOSPI and some individual names may be flagging an interesting setup here.

We’ll go deeper into all the signals in the upcoming report.

See you soon, have a great weekend,

-MC

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Thanks for reading.

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