At a late stage, speculation tends to detach itself from really valuable objects and turns to delusive ones. A larger and larger group of people seeks to become rich without a real understanding of the process involved. Not surprisingly, swindlers and catchpenny schemes flourish.
- Charles Kindleberger, "Manias, Panics and Crashes"
Much has been written about panics and manias, much more than with the most outstrechted intellect we are able to follow or conceive; but one thing is certain, that at particular times a great deal of stupid people have a great deal of stupid money...At intervals, from causes which are not to the present purpose, the money of these people - the blind capital, as we call it, of the country - is particularly large and craving; it seeks for someone to devour it, and there is a "plethora"; it finds someone, and there is "speculation"; it is devoured, and there is "panic."
-Walter Bagehot "Essay of Edward Gibbon"
Lesson of the day from William Green's book Richer, Wiser, Happier: How the World’s Greatest Investors Win in Markets and Life
"You have to play in a game where you’ve got some unusual talent. If you’re five foot one, you don’t want to play basketball against some guy who’s eight foot three. It’s just too hard. So you’ve got to figure out a game where you have an advantage, and it has to be something that you’re deeply interested in.” - Charlie Munger
Lesson of the day from William Green's book Richer, Wiser, Happier: How the World’s Greatest Investors Win in Markets and Life
"Who you spend your time with is probably the most important thing in life." - Ed Thorp
"Indifference to other's opinion… Willingness to be lonely, take a position others don't think is too bright. An inner conviction." - Lipper
Lesson of the day from William Green's book Richer, Wiser, Happier: How the World’s Greatest Investors Win in Markets and Life
"This basic building block of society is broken when those with their hands on the permanent capital change their minds with their underwear...The Bible would say that you want to build your house on rock rather than sand." - Nick Sleep
"Let's make it simple. Really simple.” - Joel Greenblatt
It’s a good thing I use a TP-Link router. What can’t be hacked these days? Are Meme coins the right answer to that question? Speaking off memes, did you read my latest FOMC Recap?
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| This is clearly an AI generated parody image, so just roll with it. |
Hi
there and welcome to a very special edition of FedCenter. We're thankful that
you've joined us. Today is a special year-end review edition. We’ll be counting
down the Top Ten Plays from this year’s FOMC Recaps, but before we get there,
let’s dive into this afternoon’s game of the week which featured the Powell
Rangers vs. the Market Memers.
This isn’t the
first time these teams have met and on the season series it’s been all Market
Memers. The Memers have been on a tear of late, though they entered this
game without star phenom HAWK (Tuah) coin, who has been suspended for the
remainder of the season. The loss of Hawk Tuah hasn’t had much impact on
the Memers of late as FartCoin has been stellar off the bench. Let’s face
it the Memers team is loaded with a cast of all-stars like PNUT, Roaring Kitty
(who has been killing it since his return from injured reserve), and Moo Deng
among others.
The Powell Rangers entered this matchup riding a losing streak
dating back to September 18, 2024. The Powell Rangers star, Jay Powell
(aka J-Pow), has certainly doing his best to imitate Heisman winner Travis
Hunter of late, believing he can play both offense and defense, but let’s face
it his stats this year seem to indicate he’s been letting a few inflation
players get right past him.
Speaking of September 18th, the Powell Rangers haven’t shown up on
defense since Miki Bowman, who her teammates describe as the “heart of this
defense (against inflation)” was solid in net, with a late game
glove save to prevent a power play goal as time expired, with her decision to
dissent.
Heading into the game Powell Rangers assistant coach NikiLeaks
mentioned how the team was searching for identity, struggling with the loss of
one of their start players “R-Star”.
Vegas knew going into this matchup that Powell was going to have a
tough facing his arch nemesis and one of the stars of the Memers, “Money
Printer go brrrrr…”
So let’s get to the highlights.
Out of the gates, The Powell Rangers took a shot and cut rates 25bps to 4.25% - 4.50%. In drawing up their play the Powell Rangers cited “economic activity has expanded at a solid pace” while acknowledging that labor market conditions have “generally eased” while inflation remains “somewhat elevated”. Overall characterizing risks as more balanced.
It was typical Powell Rangers strategy of trying to skate where the puck is going to be while watching their flank. This time Cleveland Fed President Beth Hammock stayed back on defense, dissenting. After all it is the Cleveland Fed that is the Fed’s center for inflation research and that pesky player for the Memers, the Money Printer, is always ready to run right past Powell.
The game progressed with the Powell Rangers being pretty stingy on defense in the second period, lowering the number of projected cuts to the 2025 Fed Funds rate by 50bps, pricing out 2 cuts relative to their last projections due to higher inflation projections, and slightly adjusting their longer-run Fed Funds neutral rate up to 3%.
At the second intermission it looked like the Powell Rangers had
Market Memers on the ropes, with yields rising while equities and crypto were
falling.
Entering the third period (the press conference), oddsmakers were wondering if
the Powell Rangers would allow the Market Memers a comeback as the Memers would
look for openings where the Powell Rangers might be making the same mistakes of
the 1970s and be sticking to their notoriously inaccurate forecast?
The third period opened with the Memers taking a shot, looking for
an opening in the Powell Rangers defense, with the typical attack focused on
"Why did you cut today, if you expect inflation to remain above target
next year?" The Powell Rangers defense lead by J-Pow, was
their usual skating around in a manner that utterly confuses the opponent while
producing no tangible results.
The Powell Rangers coach played under a 5 prong attack which
consisted of "growth is stronger, unemployment is lower, inflation is
higher, we’re closer to neutral and uncertainty is higher” as a strategy
to keep the Memers at bay.
Powell's defense even added a trick-play which he called in as "driving on
a foggy night" as a way to keep the Memers off his tracks as he skated up
the ice.
At one point during the third period, Rangers star J-Pow seemed to
lose track of the play call, failing to find the data during a question and
shuffling papers repeatedly. Powell almost lost the puck on a few
occasions, but the Memers failed to capitalize on the Rangers few openings
and couldn't find much of a "dovish" opening that would
have allowed them to put some goals on the board.
In the closing moments of the third period, the Memers had an opening, trying to run
their "financial conditions" play, seeing if they could get the
Rangers to give them an opening with a good old "Bitcoin" question,
but the Rangers defense dumped the puck back down the other end of the rink.
The Powell Rangers seemed to be "in a new phase" in terms
of their play calling relative to their last few games and it seemed to keep
the Memers off guard. J-Pow's late game defense even consisted of a
Jedi mind trick where he said something like "there is no certainty.
It's actually a good thing that we know that we don't know exactly [where
the neutral rate is]." as a way to combat the opposition, who
promptly turned the puck over.
While skating off the ice with the upset in the books, J-Pow,
said "the jobs not done" and we'll get inflation back
sustainably to 2%.
We'll get interviews with all the Powell Rangers stars over the
coming weeks.
Now turning our attention to the FedCenter Top 10 Highlights of Fed
Watching in 2024 (courtesy of AI's reading of my FOMC recaps):
Number 10: The Man in the Orange Hat - Election Year Politics! Remember way back in January
when the Fed was still hiking rates? Talk about a flashback! Turns out, our
guy J-Pow is a Deadhead, and we're pretty sure he wasn't listening to
"Sugar Magnolia" when he was staring down those inflation numbers.
This was the year the author started worrying about those election year
shenanigans, and he even channeled some Paul Volcker wisdom to remind us that
politics and monetary policy don't always mix!
Number 9: March Madness Lessons: The Fed's Bracket is Busted! Springtime! Birds are
singing, flowers are blooming, and the Fed is trying to figure out how to
pull off a soft landing. Spoiler alert: it's about as easy as filling out a
perfect bracket. Our author took us to school with this one, reminding us that
the economy is a wild and unpredictable beast, and even the best-laid plans can
go out the window faster than a Cinderella team facing a powerhouse.
Number 8: "Dark Matter" - The Unknowables of Monetary
Policy! Things
got a little existential in May when the author dove deep into the "dark
matter" of economics. We're talking about all those hidden forces
that nobody can really measure or predict. He even dropped some Pearl Jam
lyrics to drive home the point! Clearly, uncertainty was the name of the
game this year, and we're not just talking about the Fed's forecasts.
Number 7: Powell's 21 Questions - Obfuscation and Evasion! Time for some press
conference shenanigans! Remember back in June when Powell faced a grilling
from those pesky reporters? It was like watching a masterclass in dodging
questions. Our author decided to translate for us, revealing the "questions
behind the questions" that Powell just wouldn't answer. Let's just
say, transparency wasn't exactly the Fed's strong suit this year.
Number 6: "Trade Deadline" - The Balancing Act Continues! July brought more FOMC
drama, and this time the author compared it to the MLB trade deadline.
Apparently, setting interest rates is a lot like building a championship
baseball team – you've got to make tough choices, manage expectations,
and hope you don't blow it all up. Hey, nobody ever said this Fed gig was
easy!
Number 5: March Madness: The Fed's Playbook? Apparently, the Fed
can learn a lot from college basketball. "It is impossible to be
perfect" and "plans are worthless, but planning is
everything." Deep stuff. Someone get Coach K on the FOMC!
Number 4: "Got Debt?" - Fiscal Concerns Take Center
Stage! Remember
that awkward family Thanksgiving dinner where everyone argued about politics
and money? Well, that was basically the FOMC meeting in November. Debt and
deficits were the main course, and Powell even admitted that unsustainable
fiscal policy was a threat to the economy. Our author was practically screaming
"I told you so!" from the rooftops, warning about the dangers of
financial repression and the erosion of the Fed's independence. Pass the gravy,
please!
Number 3: September Surprise: 50 bps Cut and a Dissent! Now we're getting to the
good stuff! Back in September, the Fed shocked everyone with a whopping 50
basis point rate cut AND a dissent from one of the Governors. Talk about a plot
twist! This was the moment the author really started pounding the table
about the Fed's dovish turn, and it set the stage for the rest of the year's
easing action.
Number 2: Market Memers Bow Down, Allow the Powell Rangers to Skate
the Clock Out! The
tension was palpable as December arrived. The Powell Rangers, bruised and
battered from a season of battling inflation, were clinging to a narrow lead.
Suddenly, the crowd erupted! Whispers of "normalization cuts" sent
those 2-year yields tumbling faster than a meme stock on a bad day. The
Memers, caught off guard by the Rangers' unexpected agility, could only watch
in disbelief as the bond market surrendered. Victory was within reach!
And the Number 1 Play: Powell Rangers Snatch Victory from the Jaws
of Defeat! The
final whistle blew, and the scoreboard lit up with a second consecutive rate
cut. The Powell Rangers had done it again! They had faced down inflation,
navigated a treacherous yield curve, and emerged victorious. Sure, there were a
few stumbles along the way (that Hammack dissent had some folks scratching
their heads), but in the end, they proved that experience and a little bit of
luck can go a long way. The Memers, left wondering what just happened,
retreated to their locker room, vowing to return next season with a vengeance.
But for now, the Powell Rangers are hoisting the trophy, basking in the glory
of their hard-fought win.
FOMC week starts with the major indexes on a losing streak and bond yields having recently crept back a little higher off their lows. Nonetheless the cake is baked for a 25bp cut this Wednesday. We'll get BoE and BoJ in the mix as well to make this week truly a holiday treat. In less of a holiday treat, S. Korea impeached their president following the recent attempted maritial law debacle.
Of course investors are still excited about a deregulatory push, low taxes, and generally pro business policies, along with a Fed that is likely to have their back in 2025. There is seemingly less concern about "frothy valuations" despite valuation metrics putting the current market on par with other "bubbles" in hisotry. Time will tell.
"I always think in the technology world, in the semiconductor world, there is Moore's law and then in AI there is the scaling law. And at Marathon we have the law of capital cycles, which suggest excessive investment is often followed by poor returns. And I think this is kind of what we are observing. There is a huge amount of investment fueled by the idea that the scaling law will continue.....but if the scaling law starts to slow down, then what we are going to end up with is massive overcapcity."
"On a related note, the push to get more retail investors into private assets needs to stop. I’m not against private markets—they provide value and have a role in institutional portfolios. But private equity and credit have likely grown beyond optimal size, another byproduct of near-zero rates. Shrinking them back to size might create challenges."