Postcards: They Think We're Dumb (And Republic Risk)

The Federal Reserve party in Jackson Hole this week is another example of sounding as smart as possible while still flailing into the wind on policy decisions. ͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­ Forwarded this email? [Subscribe here]() for more You are a free subscriber to Postcards from the Florida Republic. To upgrade to paid and receive the daily Republic Risk Letter, [subscribe here](. --------------------------------------------------------------- [Postcards: They Think We're Dumb (And Republic Risk)]( The Federal Reserve party in Jackson Hole this week is another example of sounding as smart as possible while still flailing into the wind on policy decisions. [Garrett {NAME}](floridarepublic) Aug 20 floridarepublic   [READ IN APP](   [Republic Risk Readers Go Here for Today’s Morning Piece]( Market Update and Momentum: In one of the clearest examples of how liquidity moves markets, today, we'll try to extend the relief rally to 9 days. After witnessing record amounts of leverage unwind in early August due to the unexpected BOJ hiking rates, US markets continue to attract capital with high interest rates and highly liquid assets. [Subscribers can get my daily assessment of markets, momentum, and our portfolio right here.]( [Upgrade to paid]( --------------------------------------------------------------- Dear Fellow Expat: There was a reason why economics courses were taught before 10 in the morning. [Comedian Louis Black once joked]( about his class and said he wanted to ring his professor by the neck and scream: “Why are you teaching this at such an ungodly time in the morning? What are you trying to do? Keep this stuff a secret?” No one… should be subjected to interest rate policy nonsense during breakfast hours. Based on the Fed’s upcoming meeting in Jackson Hole, Wyoming… I think Black’s correct. In addition to retreating to a town mimicking a post-apocalypse hideout, their upcoming discussion of monetary policy deserves scrutiny. This week, the annual Federal Reserve Symposium’s theme is an SAT-vocab word salad: “Reassessing the Effectiveness and Transmission of Monetary Policy.” Oh, for heaven’s sake. [Upgrade to paid]( You Make Sense of This Ask yourself - does that title make sense to you? What’s the point of this academic world of salad stuffing? To sound smart, but after three years of reckless mismanagement, we know they’ve largely been flying by the seat of their pants at the Federal Reserve. Why can’t they treat Americans like ordinary people? Just call the event: "Rethinking the Impact and Reach of Monetary Policy." Or… "Reevaluating How Effective Monetary Policy Really Is" Or… “Maybe central planning isn’t as great as we think it is…” Because that’s what they’re set to do—examine what has gone wrong with their policies over the last few years. I plan to dig much deeper into the event because it will shape the economy and the equity market for at least the next two years. Above all, we are barreling toward another year of liquidity expansion - driven heavily by monetary policy (the Fed’s actions on interest rates and open market operations). But before we even get there, I want to briefly mention the three things aggravating me about this Jackson Hole event. No. 1: The Press Doesn’t Press Back A financial media swarm will arrive in Jackson Hole like it does in Davos, Switzerland, where the masters of the universe meet at the World Economic Forum. Because the media prefers access to power instead of challenging power, the average person will know even less about monetary policy than they did last week. It is astounding to me that the media - especially around this election - is going with the talking point that “corporate greed is driving inflation.” This requires evidence that all companies colluded at once to raise their prices - and no one decided to undercut their competition at any point on prices to expand market share. Oh, and they only started doing it… right around 2021. Inflation is always a monetary phenomenon caused by too much money chasing too few goods. We printed way too much money in 2020/21, and the result has been the inflation we received. The money printer is at the front of the monetary supply chain, and everything that has happened is based on the incentives created by the central bank. Corporate pricing is well down the line - after the hedge funds have gotten paid, raw commodities have been extracted, and supply chains are coordinated. It’s evident that a contracting pool of people really understands how money works. No. 2: Americans Have No Idea What The Fed Does This event will likely factor into the fact that monetary policy hasn’t cooled the equity markets. The Fed’s Quantitative Tightening (raising interest rates and reducing its bond holdings) hasn’t don’t a damn thing to cool off rampant speculation. It’s deteriorated the real economy and crushed manufacturing while Congress has engaged in radical spending. And talk to the average person - and they still have no idea what anything I’ve just said means. This is from Ipsos in 2022: Only 7% say they know a lot about the Fed's responsibilities. Fewer than one in ten (8%) correctly identify the Federal Reserve is tasked with maximizing employment, while more, though still a minority (34%), correctly identify its responsibility to stabilize prices. Forget Harris or Trump. The Federal Reserve will have more impact on Americans' lives in the next four years than any presidential candidate. The President needs to get fiscal spending over the finish line (although Biden added about $2 trillion in new debt through executive orders, according to the House Budget Committee). Yet the Fed has singlehandedly driven much of the country's inequality thanks to its Quantitative Easing policies, fueled sharp rises in asset prices, and essentially made the American Dream unaffordable. If only the press and politicians would explain this. No. 3: The Fed Lets Everyone Else Off the Hook Yes, the Fed is centralized planning. They have a monopoly on the interest rate, and they ride to the rescue whenever shadow banks create a crisis… or their own policies create a crisis (see their pivot on mortgage-backed securities in October 2022, which helped fuel a three-digit surge in housing stocks). But the Fed isn’t alone in its policies. It doesn’t critique Washington critters with vastly less academic experience in economics. Hell, Jared Bernstein chairs the United States Council of Economic Advisers. [He doesn’t even understand how the bond markets work.]( they can have some closed-door meetings with the people shaping public policy. It hasn’t addressed that government spending is out of control and that the Treasury Department undermined the Fed’s policies last year. According to Nouriel Roubini, the Treasury Department’s fiscal policies, which tapped into the General Account and kept pumping capital back into the system, had the full impact on the economy as a 100-basis point cut by the central bank. “By adjusting the maturity profile of its debt issuance, Treasury is dynamically managing financial conditions and, through them, the economy,” [Roubini and his co-author wrote last month](. It’s not just the Treasury. It’s everything. The Fed only has three fundamental tools to alter the economy. Interest rates are the blunt hammer. Repo operations are a plumbing operation. And bond purchasing/selling is a liquidity fix. However, monetary policy has been undermined by fiscal recklessness and a complete disassociation with fixing the supply side of the equation. There are 25,000 groups in charge of housing zoning in America at the local, municipal, county, state, and Federal levels. Politicians will talk about cutting red tape during elections but never do so. This is how you end up in a situation where the price of real assets keeps rising over the price of things that don’t matter. Since 1978, when most measures were enacted, housing, food, electricity, and education inflation have all outpaced the Consumer Price Index. This is a failure of policy. Of course, if you look back, recall Arty Burns, the struggling central bank chief of the 1970s who struggled to keep inflation unchecked. It took him until 1979 to travel all the way to Yugoslavia to deliver a speech—thousands of miles away from the others in Washington. He argued that he couldn’t get inflation under control when Nixon removed the gold standard, we introduced Cost of Living Adjustments, drastically increased the size of government, continued to fight wars, strangled our supply side, relied too much on foreign nations for key commodities, and needed to pay for The Great Society. It turns out that those problems are very similar today, and the Fed just won’t do what it should. Call out the politicians who are fueling this explosion in spending and the ensuing money creation, which brings us over $1 trillion in interest alone each year. Alas, I don’t see that happening. So, my advice remains the same. The playbook for expanding monetary inflation remains the same: Gold, energy commodities, Bitcoin, prime real estate, and S&P 500 companies with little debt and a penchant for buying back their stock. This place is a mess. Stay positive, Garrett {NAME} Secretary of Defense Disclaimer Nothing in this email should be considered personalized financial advice. While we may answer your general customer questions, we are not licensed under securities laws to guide your investment situation. Do not consider any communication between you and Florida Republic employees as financial advice. Under company rules, editors and writers cannot recommend their positions. 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