Spooky Weekly Charts

We started last week with renewed hope of an early pivot: the Bank of England is suddenly buying bonds again, so maybe the Fed will, too? But that was overly optimistic: Powell still wants lower prices — he’s only going to help us out if things get disorderly.

But that, per Friday morning’s news, that, too, may be wishful thinking:

Asked what the Fed would do if the Treasury market encountered liquidity problems, Fed Governor Christopher Waller dumbed it down for us: "On Oct. 31, the liquidity for pumpkins is very high, but on Nov. 1,the market liquidity for pumpkins just goes to zero. But I’m not going to step in and fix the pumpkin market."

Wait, what? 

You've been telling us to buy pumpkins for years. And now it's our fault for buying too many pumpkins? Now you’re mocking us for buying too many pumpkins???

A disorderly market in decorative gourds won't ruin anyone's life. (It might even make our pumpkin-spice lattes a little cheaper?) 

But a disorderly market in Treasuries will do.

I’d like Governor Waller to go talk to someone unable to take a job in a different city, because it would mean replacing a 2.5% mortgage with a 7% mortgage.

Or to anyone simply trying to buy OR sell a house. 

Or to the CEO of a small-town bank watching his assets go down in price while his liabilities go up in cost.

Or to a central banker in any of the countries where the soaring US dollar is having devastating effects. 

Go have those conversations, Governor Waller, and then let us know if you really are OK with Treasurys trading like they’re pumpkins on the day after Halloween. 

In the meantime, please leave the flippant analogies to newsletter writers.

Things are already disorderly enough. 

The first cut of October inflation suggests things could get more so:

MoM CPI is going in the wrong direction: 72 bips vs September’s 32 — yikes. The YoY number should still fall as base effects are working in our favor. But we really need a 7-handle on the headline number. ASAP.

 Unfortunately, things are pretty good:

Following good PMI, consumer spending and investment data, the Atlanta Fed’s model now projects Q3 GDP back up at 2.7%. I’m not sure if that’s good/good news or bad/good news: Positive spin: Soft landing! Negative spin: QT-4-eva.

As Ed Yardeni noted this week: “The next recession might be the most widely anticipated recession that doesn't happen.” That will sound like great news to everyone not currently on the Federal Open Market Committee.

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Here’s the good-bad news:

Back before Powell decided to go as Paul Volcker for Halloween, he told us his goal was to get job openings down without getting unemployment up. It’s happening! JOLTS data earlier this week showed job openings falling sharply and this morning’s data reported unemployment at just 3.5%.

Don’t fight the Fed:

The blue line here is a proxy for bank money printing, which has been neatly correlated to equities (red line). At least four Fed speakers (Cook, Daly, Bostic, Waller) said this week that the blue line will keep going down. Don’t fight the Fed, dummy.

Do fight the Fed?

In 2015 - 2020, that same blue line was falling and equities were rising. Fighting the Fed was the way to make money. So, we don’t always have to do what the Fed tells us to do.

- Byron Gilliam

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