Front-Running the Flip-Flopping Fed

Published on
August 16th, 2019
40 minutes

Front-Running the Flip-Flopping Fed

The Interview ·
Featuring David Zervos

Published on: August 16th, 2019 • Duration: 40 minutes

David Zervos, chief market strategist at Jefferies, explains why he thinks we are on the cusp of a paradigm shift at the Fed. Zervos says the Fed overtightened in 2018 and has not communicated a consistent strategy since then. The result has been a huge bull market in bonds that could force the Fed to cut to the quick. Zervos also explains his view on the risk parity trade, demographic challenges to growth, and what he calls the "bondfire," in this conversation with Ed Harrison. Filmed on Aug 12, 2019 in New York.



  • RE
    Richard E. | Contributor
    4 September 2019 @ 20:22
    Dave has a talent for taking potentially difficult market topics and using the proper analogies to make them very easy to understand. Thanks
  • MH
    Mark H.
    25 August 2019 @ 11:24
    I cannot possibly exaggerate how much I like that interview. Excellent.
  • RH
    Robert H.
    20 August 2019 @ 17:06
    I deduce that inflation (rising cost of living) has been present in the various levels of government themselves, in taxes. So we've had inflation all along, no?
    • ST
      Steven T.
      23 August 2019 @ 13:24
      Don't know if it is hidden in taxes, but how inflation is calculated did change in the 90's. The change did lower reported inflation and the cost of living adjustments for social security payments. Not going to go into the merits of the change, but saying it did change. If you want to look into it further, the change was spurred on by the Boskin commission.
  • FB
    Floyd B.
    19 August 2019 @ 21:17
    Well by the comments after this interview the crowd was restless. What I found interesting was the focus on something other than trade,as most know the economies of the world were slowing before the trade conflict started.Were the comments on risk parity simplified,probably,will the affects of negative interest rates make the strategy less predictable,likely,were the comments on why the FED raised rates incomplete,yes. RELAX and understand the limitations of a forty minute interview. One thing I didn't appreciate was the commercial by Zervos at the end. Ed,great job,you let the speaker talk but interject strategically.
  • DS
    David S.
    19 August 2019 @ 03:42
    In a last-ditch effort to make a United Europe, Christine Lagarde will try to implement a controlled MMT to kick start the slowing economies. Her legal and negotiating skills will be needed, There is a chance that even Germany will step in as its economy is slowing. It will not work. The Euro, QE and negative rates have not worked, but that will not stop the politicians from trying. With all the different countries needing to agree, it will be a "Glass Bead Game" to the max. Another option is to break up the Euro, but they will try everything possible before they allow the Euro to crumble. DLS
  • LL
    Ludovico L.
    18 August 2019 @ 18:39
    Loved the high level macro section on disinflation increment from demographics, technology and low rates/cheap capital
  • JH
    Joseph H.
    18 August 2019 @ 17:41
    Good interview. I only detect inflation in the 3 biggest asset classes in the world. U.S. stocks, bonds and real estate in cities over 250K. College costs are up 1,375% since 1978, 4x's the CPI. Someone should ask Liz Warren why this is so? Give her a Ph.D. in Chutzpah. The cost of funding retirement, the biggest liability anyone of us will ever have has soared. Ask any CFO still overseeing a DB plan. My health care premiums and OOP costs are surely up more than the CPI since Barry Care took hold in 2010. I think the Fed has overshot it's inflation goal. Mission accomplished Chairman Powell. Stop.
    • DS
      David S.
      18 August 2019 @ 17:50
      Cute. DLS
  • DH
    Daniel H.
    16 August 2019 @ 20:48
    So now holding prices steady (the fed mandate is no inflation) is dissed using the Laffer curve. This is academic baloney. I enjoyed the conversation except for this. Inflation is only good for debtors and bankers.
    • Hv
      Hannah v.
      17 August 2019 @ 00:55
      Hi Daniel, I’m wondering if you can help me understand inflation. I’m green when it comes to inflation, dis-inflation, deflation etc. I’d love to understand why it’s only bankers and debtors who love it. I’m assuming they profit, but I don’t quite get how. Thanks in advance, Hannah
    • PP
      Patrick P.
      17 August 2019 @ 17:05
      Hannah... Inflation is caused by the increase in the money supply... the early users of this new money are banks (they get the full impact (purchasing power) of this new money). By the time the money goes through the system it has been devalued. Debtors get to pay off their debt with money that is no longer as valuable as the amount of the original debt in purchasing power. The Government as the largest debtor loves is a hidden tax that allows them to pay off their debt with cheap dollars. The opposite for savers and the everyday guy.
    • WM
      Will M.
      18 August 2019 @ 17:47
      One more thing Hannah, STATED inflation rates by the government are bogus. Many aspects of manufactured goods have declined in price for sure, but the real costs of actually living and prices of services have soared. John Williams' Shadow Stats compares how we used to calculated inflation versus how we do it today, his figures are double the government figures.
  • PU
    Peter U.
    16 August 2019 @ 12:47
    Reality check: after 10 years of nonstop intervention & record debt expansion we’re right back where we started: Without more stimulus, rate cuts, and coming QE everything falls apart. What’s that tell you about the true state of economies and financial markets?
    • DS
      David S.
      16 August 2019 @ 19:05
      The Fed no longer has control. In reality the Fed should not have control, only minimal ability to change short-term rates. Spending more and taxing less by Congress generates a lot of fiat currency. DLS
    • WM
      Will M.
      18 August 2019 @ 17:40
      Of course, its worse than 2008/9. Debt is MUCH higher and the corporate debt world is an accident waiting to come to your door in a few weeks or months time. Next time around the folks railing at the 1% may expand their ire to any one who has a 7 figure savings account. If the crash happens before the next election watch out for a left wing backlash.
  • PU
    Peter U.
    16 August 2019 @ 09:36
    "For all of their faults leaders like Donald Trump, Matteo Salvini and even Boris Johnson understand that to regain the confidence of the people they will have to wrest control of their governments from the central banks and the technocratic institutions that back them. That fear will keep the central banks from deflating the global money supply because politicians like Trump and Salvini understand that their central banks are enemies of the people. As populists this would feed their domestic reform agendas. So, the central banks will do what they’ve always done — protect the banks and that means inflation, bailouts and the rest. At the same time the powers that be, whom I like to call The Davos Crowd, are dead set on completing their journey to the Dark Side and create their transnational superstructure of treaties and corporate informational hegemony which they ironically call The Open Society. This means continuing to use whatever powers are at their disposal to marginalize, silence and outright kill anyone who gets in their way, c.f. Jeffrey Epstein. But all of this is a consequence of the faulty foundation of the global financial system built on fraud, Ponzi schemes and debt leverage… but I repeat myself. And once the Ponzi scheme reaches its terminal state, once there are no more containers to stuff more fake money into the virtual mattresses nominally known as banks, confidence in the entire system collapses. It’s staring us in the face every day. The markets keep telling us this. Oil can’t rally on war threats. Equity markets tread water violently as currencies break down technically. Gold is in a bull market. Billions flow through Bitcoin to avoid insane capital controls. Any existential threat to the current order is to be squashed. It’s reflexive behavior at this point. But, as the Epstein murder spotlights so brilliantly, this reflexive behavior is now a Hobson’s Choice. They either kill Epstein or he cuts a deal or stands trial and hundreds of very powerful people are exposed along with the honeypot programs that are the source of so much of the bad policy we all live with every day. These operations are the lifeblood of the power structure, without it glitches in the Matrix occur. People get elected to power who can’t be easily controlled. The central banks are faced with the same problem. To deflate is worse than inflating therefore there is no real choice. So, inflation it is. Inflation extends their control another day, another week. Whenever I analyze situations like this I think of a man falling out of a building. In that state he will do anything to find a solution to his problem, grasp onto any hope and use that as a means to prolong his life and avoid hitting the ground for as long as possible. Desperate people do desperate and stupid things. So as the mother of all Battles of the ‘Flations unfolds over the next two years, remember it’s not your job to take sides because they will take you with them. This is not a battle you win, but rather survive. Like Godzilla and Mothra destroying the city. If Epstein’s murder tells you anything, there’s a war going on for control of what’s left of the crumbling power structure. And since inflation is the only choice that choice will undermine what little faith there is in the current crop of institutions we’ve charged with maintaining societal order. As those crumble that feeds the inflation to be unleashed. For the smart investor, the best choice is not to play. Wealth preservation is the key to survival. That means holding assets whose value may fluctuate but which cannot be taken from you during a crisis. It means having productive assets and being efficient with your time. It means minimizing your counter-party risk. Getting out of debt. Buying gold and cryptos on program or on pullbacks. Most importantly, it means keeping your skills up to date and your value to your employer(s) high. And if you’re really smart, diversifying your income streams to keep your options open. Deflation and inflation are two sides of the same coin (or the same side of two coins). Both are just as destructive." - Mr. Luongo
    • WM
      Will M.
      18 August 2019 @ 17:35
      Some very good points indeed Peter. Regarding Epstein, Martin Armstrong PREDICTED he wouldn't be allowed to testify under any circumstances. A great and wise call. I am shifting toward 50% wealth preservation now with my 401 and personal funds now (cash/gold /silver). Cant do a damn thing about my company pension funds yet, unless I choose to retire now instead of end next year!
  • PU
    Peter U.
    16 August 2019 @ 09:18
    Zervos at 32:08 "But we have other disinflationary trends. Just tightened monetary policy 250 basis points with $800 billion of QT. Why did they do that? To slow aggregate demand and produce disinflation to fight, theoretically, higher inflation." WRONG AGAIN DAVID. Fed wanted to move further from the extraordinary monetary policy framework that we have been stuck in for 10 years! David, I have been listening to you for a long time. You are a dangerous thinker as it relates to monetary policy and the role of Central Bankers. You encourage price fixing in interest rates via "we need inflation". You "normalize" the concept that the Central Bank can work closely with the Treasury and purchase all outstanding debt and this doesn't fly in the face of real economics. Specifically, economic prosperity is not a magic trick (e.g. CB working with Treasury to buy all the outstanding bonds). It takes hard work, social cohesion and discipline, innovation and creativity, and savings and prudent investment (PROVEN F ECONOMIC VIRTUES - DAVID). The extraordinary monetary policies like QE (in the form of CB purchases of sovereign bonds, corporate bonds, mortgages, equities, and junk bonds) zero interest rates, and negative interest rates implemented en mass since 2008 (now > $17 f Trillion - DAVID) HAS NOTHING TO DO WITH PROVEN ECONOMIC VIRTUES. These unprecedented monetary policies (that YOU F ENCOURAGE YOU DANGEROUS TWIT) are utilized to avoid short-term economic "pain" and these policies will ultimately wreak economic havoc just as prior "SOMETHING FOR NOTHING" monetary policies have done throughout history. IMHO, you are intellectually F DISHONEST as I know you aren't stupid on this subject matter.
    • IF
      Ian F.
      16 August 2019 @ 17:14
      Peter - How does a positive fed funds rate equate to virtue? That is just as artificial as anything else a central bank does. Their entire job is to price fix, they are issuers of the currency. But you prefer them to price fix so you and your clients get a return and somehow that is virtuous to society overall? Why is providing income to savers (i.e. the rich who already have money) better than not providing them a return? Interest payments are simply a wealth transfer in society from one group to another with no net gain. So you are effectively saying the debtors (i.e. the poor) and entrepreneurs should be disadvantaged to the rich? And this is somehow high and mighty? All the funds rate is is the return for holding dollars. If the fed didn't exist to price fix and provide a return this would = 0%. In fact if we were on a gold standard the fair market return for holding USD would be negative = gold storage fees = (25-50bps). I am not saying either is better than the other, all I am saying the source of your little tirade above is your personal belief system and one could argue the exact opposite as also being true.
    • JH
      John H.
      16 August 2019 @ 21:29
      Dude. Never in the 5,000 years of interest rate history has there been such a massive portion of the population saving for 30 years of retirement. It's just supply and demand driving real rates negative. Zervos has nothing to do with it and is undeserving of this abuse (never met the guy in my life and disagree with plenty he says, but hey, respect to the guy who coined "spus and blues" this cycle).
    • WM
      Will M.
      18 August 2019 @ 17:27
      Some good points here Peter that got me thinking. Just wish you hadn't lost the plot on the heavy language.....
  • SB
    Stewart B.
    18 August 2019 @ 16:50
    Jay Powell not academic enough? He has seen more markets than probably every PhD at the Fed combined. I'd trust my money, and our monetary policy, to a non-academic like Powell any day. The more academic central bankers become, the more detached from reality the are. In any other science, a good ability to forecast implies a good understanding of the subject. For some reason we keen looking to academics with terrible forecasting records, and listening to those who promote them, more than we should IMHO. I suspect most people who have had skin in the game will agree.
  • BC
    Brente C.
    17 August 2019 @ 13:35
    This is as close to unwatchable as Real Vision gets in my book. Shallowly boiling down every market problem to there not being loose enough monetary policy in what is already the loosest era of DM modern history does not pass for thoughtful analysis to me. Once rates get pushed below zero nearly everywhere, the argument is then not deep enough negative rates I'm guessing? Care to venture into more structural or meaningful territory perhaps?
    • LP
      Lynn P.
      18 August 2019 @ 16:43
      Did you watch the rest of the interview? Structural elements of demographics and technology and their effects?
  • EC
    Earl C.
    18 August 2019 @ 16:21
    Wow and I thought Raoul was sticking his neck out on his call about European banks & all that entails. Appears Dave Zervos wants a bold call type arms race with him by predicting US interest rates will not go negative tomorrow. According to him the world economy must have been much stronger than I realized when the trade war erupted. I did enjoy viewing this & did get some insight I lacked about the inner fed workings.
  • as
    andrew s.
    18 August 2019 @ 15:23
    Thanks David
  • RG
    Rodrigo G. | Contributor
    17 August 2019 @ 01:47
    I appreciate the well thought out Macro views David presents. But it continues to confound me how profoundly misunderstood the basic concept of Risk Parity continues to be even with well versed financial professionals. While there are many misunderstandings, the biggest has to be the assertion that Risk Parity will do poorly in an inflationary environment because both bonds and equities will correlate and lose money together. This is simply and categorically incorrect. Traditional Risk Parity intentionally implements a pro-inflationary asset class bucket that may include TIPS, commodities and gold, in equal risk contribution to the bond bucket and the equity bucket. This is a crucial and inextricable part of what makes Risk Parity “All Weather” as Bridgewater puts it. In the 70’s when bonds and stocks correlated and made no real returns, the pro-inflation bucket would’ve provided returns in the thousands of percentage points to offset that poor performance. It appears from David’s comments that his RP portfolio is merely comprised of US bonds and US equities in equal risk contribution with leverage. That is, the two best performing ex-post asset classes on the planet levered up. A traditional RP portfolio includes foreign equities and foreign bonds and inflation assets. This portfolio, long term provides a fantastic steady return stream but at a Sharpe of no mare than 60bps. Sorry I went long, lol, but I thought it would be a disservice to RV viewers if a didn’t add my two cents here. Keep up the great work!
    • PD
      Petar D.
      17 August 2019 @ 13:07
      Great contribution here Rodrigo - thanks for the addition! I am curious to hear more about how risk parity should be implemented in practise since asset classes tend to change their correlation over time (and sometimes even reverse). A great example is If we assume historical (or recent) correlation can be extrapolated that's great, but history is telling us that's not how the world works. Thanks again!
    • DS
      David S.
      17 August 2019 @ 16:39
      Thanks for your comment. Another example of the slippery slope of meaning. Most buzzwords loose their meaning when everyone believes they know intention. We do not need to define each time, but when it is an important word in the discussion it helps to clarify. Mike Green is great at this. DLS
    • RG
      Rodrigo G. | Contributor
      18 August 2019 @ 11:34
      We summarized the traditional concept here and ways one might be able to deal with changes in correlations here hope it helps!
  • EA
    Emma A.
    18 August 2019 @ 06:52
    What did Zervos mean by “major inflation framework change” at the beginning, that he said the Fed won't do before the election? Also I don't understand why the description says anything about a "paradigm shift at the Fed", it seems like he said the opposite, that it will be business as usual until at least after the election. I do agree that technology is a massive deflationary pressure that does not get talked about on this site very much. Also it drives inequality because there is no structure for the efficiencies from automation to be equally shared between capital and labor, they all go to the top. That's why massive fortunes can be made during periods of rapid technological progress, but it's also why it tends to make working conditions and compensation worse in the short run. If the US wasn't so allergic to any form of wealth redistribution maybe we could do it voluntarily before a crisis forces us to.
  • JN
    Jorge N.
    16 August 2019 @ 09:59
    I will summarize the 39 minute video: the Fed does not know what they are doing and is always playing catch up. Internal strife in the fed is lowering the feds ability to be flexible and logical. We all know the fed knew exactly what was going to happen in 2008 (they didn’t)
    • JM
      John M.
      18 August 2019 @ 03:36
      I would add the additional thought: I believe that the Fed knows that they don't know what they are doing. For me that's the sad part.
  • CH
    Charles H.
    17 August 2019 @ 05:43
    Every time I see those two coffee stands, which look much more like maces for serious melee combat, I wonder which interview will break down to the point that the interlocutors wield them in anger and take a few swings at one another.
  • MJ
    Michael J.
    17 August 2019 @ 03:50
    Thank you David Zervos for this excellent, 40-minute endorsement of bitcoin.
  • JT
    Jay T.
    17 August 2019 @ 03:29
    Thanks guys. Excellent content as usual. Like the kicks, Ed.
  • CL
    Chris L.
    17 August 2019 @ 01:22
    The last 10 min I know why his trophy wife was hitting the personal trainer
    • KA
      Kevin A.
      17 August 2019 @ 02:35
      Dude. That’s really unprofessional and uncalled for. The guy is here giving us his views. We don’t know what happened and it is none of our business. I am sure that none of us here want our personal problems splashed around in the newspaper.
  • KS
    Kathleen S.
    17 August 2019 @ 02:26
    Ms. Magoo Janet Yellen was a titan. LOL!!!
  • TO
    Tal O.
    16 August 2019 @ 15:26
    Ed is an excellent interviewer.
    • SS
      Shanthi S.
      17 August 2019 @ 02:18
  • Hv
    Hannah v.
    17 August 2019 @ 01:20
    Hi Ed and David Is there any way we could get more info on how to trade in the Bond-Stock risk parity structure? The Spoos and Blues trades, S&P and Eurodollar futures, as David calls it. I’ve put on Raoul’s Eurodollars futures trade: Dec2020 and Dec2021. I’d like to know more about working with this style of strategy especially incorporating the S&P angle as well as setting up the ED component beyond the one-time trade I’ve got on at the moment. Thanks to both of you for a great interview. It was a pleasure to listen to. Hannah
  • SA
    Stephen A.
    17 August 2019 @ 00:52
    A phenomenal interview. This was one of my favorites on this platform and a real mind bender. Zervos is just a great articulator and his FED commentary was exceptional. I really, really enjoyed this interview. What a guy. Couple of things: Much of Zervos' outlook is not unbiased. He is a risk parity guy by profession and he needs the FED to keep rates low. The FED is the only risk to his trade. He explained in detail that I have noticed that his professional bias colors his opinion on FED policy. He won't argue for higher rates even if that is the correct economic policy for the country and produces jobs and prosperity for the greatest amount of people. He is absolutely correct that inflation is a tax but what he forgets is that inflation is a highly regressive tax just like a sales tax. It hits the poorest the hardest. Thus it exacerbates inequality and inequality itself is a growth destroyer. Imagine an economy where you have one guy with $200 and 9 guys with no money - you have an economy of 1 guy spending $10. If you take $90 from the 1 guy and give it to the 9 guys ($10 each), you have an economy of 10 guys spending $100. The 1 guy is upset at his lower net worth but you have a much bigger economy. Redistribution when configured correctly produces growth. So you can configure inflation higher but at the same you are likely also configuring growth lower because inequality is higher. Because inflation is a regressive tax is one of the least preferred ways to tax - for progressives that is. Republicans love regressive taxation. However, the question ultimately isn't why the FED is missing its inflation target, the question is why the FED is missing its growth target. We have had fiscal stimulus of 1.5 trillion in tax cuts in 2018 and 1.5 trillion in spending cap increases in the budget deal this summer and the shutdown deal in January (and a whole bunch of other spending from the Paul Ryan Congress which I will not enumerate). The fiscal stimulus under Trump has been massive. So why growth still sputtering? The answer to that is not the trade war. Trade deficit and imports from China hit new highs every month, US exports hit new highs every month. Total volume of trade hits new highs every month. The trade war is largely a media fiction. Trade between US and the world has never been bigger. The answer to our growth problem is in fact higher inflation and the resulting higher inequality. GDP deflator was 2.3% in 2018 highest since 2007 and GDP deflator was 2.55% in Q2 of 2019. Phillips curve may be broken according to Zervos but very low unemployment rate and massive fiscal stimulus has us at the highest GDP deflator readings since 2007 and those have cut growth significantly from near 3% to 2%. Nominal GDP is largely constant, if inflation gets stronger, real GDP goes down. He may focus on PCE, but at the end of the day we calculate real GDP using the GDP deflator, not PCE. FED is here to produce growth and prosperity for the most amount of people. Zervos focusing too much on PCE leads him to ignore the larger inflationary threat which is undercutting growth quite significantly as we speak. Risk parity guys keep lobbying for the FED for policies that makes them rich and the FED actually listens to them, it creates higher inflation and that's a big part of the reason why the US economy can't produce the growth everybody wants.
  • Hv
    Hannah v.
    17 August 2019 @ 00:50
    Every Real Vision Interview video is the academic equivalent of a 4-month university course.. with a tuition of $180USD per year. Love you guys!
  • CL
    Chris L.
    17 August 2019 @ 00:40
    'Ol Davey just doesnt look the same without the "I <3 QE" hat.
  • DG
    Dave G.
    16 August 2019 @ 23:47
    This was a thoughtful and insightful discussion but I want to point out that commercial risk parity strategies own commodities as a hedge against unexpected inflation. The premise that risk parity will fold when rising inflation causes high correlations between stocks and bonds becomes subject to review if commodity exposure is considered. David stated that risk parity would perform poorly in the 1970s, and it certainly could, but compared to what? Strategies without commodity exposure may actually perform worse despite larger (leveraged) bond exposure in risk parity. Again, the interview was excellent and I couldn't agree more that a regime shift to inflation is a major risk that cannot be ignored.
  • AJ
    Angus J.
    16 August 2019 @ 22:33
    Brilliant thinker. In my opinion the most illuminating interview in months. Well done Ed and Real Vision. Zervos' insights into structural deflation and his explanation on the inner workings of the Fed were very helpful. His short-end leveraged risk parity model is perhaps the best asset allocation model since the financial crisis. I love the way he cut the duration and increased the leverage.
  • TW
    Thomas W.
    16 August 2019 @ 21:48
    His argument isn’t really that strong. If central banks had so much control over an economy why haven’t we seen strong growth from Japan and Europe. In addition, the Fed raised rates for good reasons unneeded stimulus when the economy is strong and unemployment is low is typically inflationary. Not to mention, that tariffs are also inflationary. Also the idea that Fed official not wanting to raise rates is unfair and dismissive. There have been growing financial imbalances simmering for a while primarily because rates were too low for too long. In my view weakness in the economy is largely due to market shocks due trade and geopolitical tensions. The impact that rising rates had on turkey and Argentina is peanuts compared to what has happened in Germany and China as a result of rising tariffs.
  • DP
    David P.
    16 August 2019 @ 20:46
    Here is one thing I can't wrap my mind around: what happens to Risk Parity under negative rates? Surely there is a limit to the negative carry that you can withstand...
  • FA
    Frank A.
    16 August 2019 @ 13:17
    I can't believe Ed said "Inflation is just a tax like any other tax". This is a completely false statement in that it is NOT like any other tax. Far from it from on a societal basis. After that .... couldn't read the rest.
    • EH
      Edward H. | Real Vision
      16 August 2019 @ 13:39
      Frank, I didn't say that. In fact, I probably shouldn't say something like that. Raoul is very sensitive to Real Vision being a platform for a variety of viewpoints. So, as the interviewer, I have to leave my opinion at the door. My hope is that when I'm interviewing, I am seen and heard as little as possible. I'm there to get the most out of the guest. I hope you guys don't care what I think!!
    • IF
      Ian F.
      16 August 2019 @ 17:24
      Ed - I think he's confusing you with David. I thought you did a great job as always.
    • KA
      Kevin A.
      16 August 2019 @ 18:46
      Zervos said it. Not Ed. Great interview. I am a big fan of Zervos. He’s good at keeping it real.
  • JC
    John C.
    16 August 2019 @ 18:00
    One point he made which was new to me was how the Fed underlings really don't like Trump (gee I wonder why) and thus there is internal pressure there underlying the whole edifice to maintain their faux independence and keep pursing their nutty academic policies. So its not just the superficial pressure on Powell to not 'give in' to Trump's crazy attacks. An angle that was overlooked during the conversation is Hedgeye's views on "PE Powell", i.e. his private equity background and how that whole ugly industry is based on low rates to help finance the companies they buy (and subsequently destroy most of the time). The PE lobby will be clamoring for low rates forever and when the time comes he'll rush back to low or zero rates 3x faster than they raised simply because he will have to. So it won't just be Trump, or 'the market' clamoring for 'lower rates' in a few months after we get some bad earnings numbers and more market hiccups. A whole chorus of folks will be doing so. Big part of the reason why I love Raoul's Eurodollar trader more and more these days.
    • KA
      Kevin A.
      16 August 2019 @ 18:45
      Good point about the PE guys and their low rates. Can’t wait for those guys to blow up as the economy worsens. (I am a HY guy who can’t stand what the PE guys get away with in the credit markets.)
  • AM
    Artur M.
    16 August 2019 @ 17:52
    What is the strategy exactly that gave such a performance?
    • JC
      John C.
      16 August 2019 @ 18:03
      Risk Parity, which is Ray Dalio and Bridgewaters claim to fame. Basically you lever up your fixed income portfolio to be on par volatility-wise with the equity portion to juice returns and create a more efficient hedge when equities drop.
  • DS
    David S.
    16 August 2019 @ 17:25
    We are in a CapEx/balance sheet manufacturing recession and the Fed cannot do anything about it. The US GDP may not actually go negative as the manufacturing sector is down to 15% from 25% 20 years ago. The Fed was trying its very best to raise rates to normalize rates to have some ammunition in the next recession. In a CapEx/balance sheet recession it would not matter anyway. That is the old game plan. Companies are too deep in debt and afraid of investment. The new reality is the Fed and most CBs no longer can affect the economy. They do affect the markets because of historical psychological market linkages; not reality. We are better off letting the FX markets apply currency discipline to the markets. The trade war like any lawsuit/government policy now has a life of its own. The daily tactical moves by the US and China do markedly affect stock markets as they make a difference in the real economy. The next big move is MMT as both sides of Congress feather their nests. This was totally unnecessary if the Western Democracies would have maintained fiscal responsibility. Fiscal responsibility, however, may just not be a normal human behavior. Oscar Wilde: “I can resist everything except temptation.” DLS
  • WB
    Wes B.
    16 August 2019 @ 17:11
    SPus and Blues. So simple and he's crushed it.
  • AM
    Alonso M.
    16 August 2019 @ 16:17
    Lots of valuable insights in this interview. I voted thumbs up even though I disagree with one or two insights. For example, one difference between the inflation tax and any other tax is inflation is a hidden tax whereas others provide 'full disclosure' to society. This difference has longer term and asymmetric consequences that I think needed to be fleshed out a bit more in the interview. For sure it's a small probability event, but the outcome is definitely not benign.
  • EK
    Edward K.
    16 August 2019 @ 15:48
    The interesting question here is that the US managed to inflate the debt from WWII and still have a growing economy. Irrespective that demographics are different (or maybe critical to it) and advantage of having only mfg infrastructure how can this be potentially be replicated or maybe the world is just too interconnected, technologically-driven, and old.
  • TO
    Tal O.
    16 August 2019 @ 15:07
    i don't know this guy but he sounds like a salesman?
  • PU
    Peter U.
    16 August 2019 @ 12:50
    BlackRock CEO Larry Fink Says ECB Must Buy Equities to Stimulate Euro Zone NEW YORK (Reuters) - BlackRock Chief Executive Larry Fink said on Friday the European Central Bank will need to purchase equities to stimulate Europe's economy, and that leaders should find ways to have investors embrace an "equity culture" there. Zervos is supportive of this. . . . crazy!
  • TE
    Tito E.
    16 August 2019 @ 11:12
    I think that for anybody who has ever had anything to do with the fed deflation / deflationary is a forbidden word. Only allowed to mention disinflation.
  • PU
    Peter U.
    16 August 2019 @ 09:32
    Per Mr. Luongo - "The central banks have run out of room to battle deflation. QE, ZIRP, NIRP, OMT, TARGET2, QT, ZOMG, BBQSauce! It all amounts to the same thing. How can we stuff fake money onto more fake balance sheets to maintain the illusion of price stability? The consequences of this coordinated policy to save the banking system from itself has resulted in massive populist uprisings around the world thanks to a hollowing out of the middle class to pay for it all. The central banks’ only move here is to inflate to the high heavens, because the civil unrest from a massive deflation would sweep them from power quicker."
  • PU
    Peter U.
    16 August 2019 @ 08:46
    I see David cleaned up his appearance and got rid of the flowing long hair.
  • DH
    Dabangg H.
    16 August 2019 @ 07:40
    Its trade war It’s not trade war Its global slowdown Oh it’s not that terrible Opinions, welcome. Make your own call.