A Trifecta For Trouble

There’s been a kind of hushhhh in regards to the monetary policy setting cartels known as, “central banks,” across the mainstream business/financial media of late. Sure, you may have heard a report about this meeting or that meeting involving one or two lead characters. However, what you have not heard is the endless commentary as to why “their steady hands” are responsible for our daily sustenance, as had been the usual.

Or, said differently, when it comes to the mainstream business/financial press – Hollywood spin-meisters should take notes on “how it’s done” by watching any Federal Reserve interview or presser. For these can make a puff-piece on Oprah® look downright vindictive and gotcha in comparison.

So, with the above for context, I would just like to point out three issues that may have very near and troublesome concerns as the “markets” eek out another “one for the ages” new high.

First…

This idea that the current “Inflation is transitory” twaddle we hear regurgitated via current Fed Chair Jerome Powell just might be getting ready to induce something that may be anything but transitory. i.e., Heartburn.

For if the latest CPI and PPI numbers are to be believed as “important to the Fed for policy adjustments.” Things are beginning to look like the idea of “not thinking about thinking about rate hikes” might be going from back-burner status to front of mind.

And not for Mr. Powell, but for the “markets” in general.

And that’s a problem, because it means “markets” might no longer just “wait and see.” They may begin moving in ways (aka selling off) that far too many think is near impossible.

Second…

The Repo markets are having issues again. And, they are not small, they are record-breakingly so.

Remember what happened last time the repo markets went haywire? Hint: February 2020. That was when the Fed threw its last bit of credibility out the window and had to renege on everything they touted prior. Repeat – everything.

This time the repo market (e.g., reverse repo) is doing things in reverse order of what it was doing prior. In other words, from the Fed having to provide funding, to the Fed now needing to take excess cash out, because the banks are now too full!
You can’t make this stuff up. And, it’s now evident that the issues revolving under the surface are morphing into who-knows-what, for these circumstances have never existed before. aka, “so much money printing.”

Again, to reiterate, the issue in size and scale in the reverse repo market is at “never before seen in human history highs,” and, at the very same time, the “markets” are doing the same!

In my book? That signals “something’s wrong here.” But, then again, who am I to apply that ridiculous habit once known as, “thinking.”

Third…

Since I brought up the idea of “thinking…”

There’s an old truism thinking people used to swear by in days of yore, that goes a bit like this…

There has never been a better indicator devised that signifies there’s a problem – than a government official denying that there is one. To wit:

New York Fed President John Williams emphasized repeatedly in an interview with Yahoo!finance™ last week that the reverse repo system “was working really well,” and that there were “really, no concerns about that. We expected that to happen. It’s working exactly as designed.”

NY Fed Pres. Williams: ‘Financial markets are working well”

Alrighty then. I guess that settles that, right?

As always, we shall see.

© 2021 Mark St.Cyr

Note: This is not trading or investing advice of any sort. This commentary is for “big picture” discussion purposes only. Please read, or re-read the “About This Site” page for any questions or clarifications.