The Fed’s Arrogance

Published on
August 2nd, 2019
Duration
11 minutes

The Fed’s Arrogance

Trade Ideas ·
Featuring Michael Gayed

Published on: August 2nd, 2019 • Duration: 11 minutes

Michael Gayed, portfolio manager at Pension Partners and author of the Lead-Lag Report, explains why he sees the Fed’s decision to cut interest rates as a mistake. In this interview with Jake Merl, Gayed highlights the knock-on effects of central bank policy, reiterates his thesis on reflation, and discusses how traders and investors should position themselves in the current market environment. Filmed on August 1, 2019.

Comments

Transcript

  • LC
    Lloyd C.
    8 August 2019 @ 11:49
    Government debt is not a problem. It's actually money lent by Government to the Government. See Japan
  • LC
    Lloyd C.
    8 August 2019 @ 11:47
    Michael thinks that humans will do the right thing. Not very likely.
  • SA
    Stephen A.
    7 August 2019 @ 23:36
    I don't think the FED wants to steepen the yield curve. Steepening the yield curve here will bring on a recession like it has every time before in history.
  • RA
    Robert A.
    4 August 2019 @ 23:09
    If Raoul is right and the US $ breaks out up hard from here the EM will be down 20% instead of up 20%.
  • WM
    Will M.
    4 August 2019 @ 16:14
    Michael Gayed's head is in the right place. However, the debt is never going to be paid off, it is going to be defaulted upon or inflated away. If the dollar rises the FED will cut further to try to keep it under control dragging us back to QE in some form or other be it MMT or some other financial smoke and mirrors. Europe may be about to make the next big move in its ongoing destruction of the European debt market. China may well let the Renminbi break the 7.0 mark. Somebody tell me what is to be bullish about, except possibly precious metals...
    • DH
      Dale H.
      7 August 2019 @ 06:27
      Well done!
  • GH
    Gary H.
    3 August 2019 @ 03:08
    This is the first interview I have ever voted thumbs down on. Please explain why the "US debt must be paid down". The federal debt never has to be apid down. As long as we pay the interest on it and its rollovers the debt is not a problem.
    • SG
      Skyler G.
      4 August 2019 @ 00:39
      Debt at these levels are a hinderance to growth. If the debt was not a problem the fed would not be lowering interest rates in the hopes to spark inflation. Nominal GDP must increase faster than the deficit. If you're expenditures outpace your income, that's a problem. If a recession were to come revenues would go down and traditionally government spending accelerates which expand fiscal deficits and by extension the national debt. God forbid a War were to break out, at these levels, the capacity to borrow would also be limited without sparking a significant rise in consumer prices. So print, print, and print.
    • PP
      Patrick P.
      4 August 2019 @ 09:31
      If debt was the panacea...we'd all by now be living in Beverly Hills ...Not in tents on the street in L.A......think about it.
  • JH
    Jason H.
    2 August 2019 @ 22:00
    The US dollar is backed by US debt! Elimination of the debt basically means elimination of the dollar. It cannot even be safely reduced without altering the current system! This why the debt will always grow inline, roughly, with any economic expansion. It is a system that is headed for major issues as it cannot deal with any major contraction without crashing completely. This is why they fear deflation and at the heart of it reducing US debt is highly deflationary while this current system stands.
    • TR
      Travis R.
      3 August 2019 @ 05:01
      Thank goodness somebody FINALLY gets it. DEBT=MONEY; more debt means more money! It is sick and demented but that is the system we have. DEBT=MONEY=SLAVERY. G. Edward Griffin's book The Creature from Jekyll Island is a must read.
  • JH
    Jason H.
    2 August 2019 @ 21:41
    The Fed appears to be pushing on a string in a sight panic over liquidity.
    • MS
      Malcolm S.
      3 August 2019 @ 03:36
      Michael obviously did not watch recession watch
  • VS
    Victor S. | Contributor
    2 August 2019 @ 19:21
    Fyi velocity of M2 is matching money supply . M2 has grown at 4.15% compounded since trump was elected. For 2.5 years its hard to find a similar period of this kind of slow growth in M2?
  • SB
    Stephen B.
    2 August 2019 @ 15:23
    O like
    • SB
      Stephen B.
      2 August 2019 @ 15:24
      I like this analysis and thinking but I cannot see buying EM at this time.
  • wj
    wiktor j.
    2 August 2019 @ 11:39
    I am just wondering what the fed will do in order to stop the dollar from going higher? Will they offer to refinance all the dollar denominated debt in the world? How would trump react knowing the fed is doing this?
    • DS
      David S.
      2 August 2019 @ 17:40
      The Fed and CBs have lost any ability to control events monetarily. They can only provide liquidity. CBs are now in a rate war with each other to keep their markets competitive. DLS
    • DH
      Daniel H.
      3 August 2019 @ 05:34
      David, in a competitive devaluation, in a race to the bottom, gold would be the one money not being devalued, and ought to rise in response.
    • TJ
      Terry J.
      4 August 2019 @ 19:07
      Daniel H is spot with the statement "gold ought to rise in response". Sadly there has been a disconnect between gold's behaviour in response to debt since at least the Clinton Greenpsan era and for me connecting the dots became easier when I read Dimitri Speck's extraordinary book, "The Gold Cartel", and in particular chapter 20, titled "The Decisive Fed Meeting", with the help of the minutes to that meeting in August 1993, the exchanges between Chairman when Greenspan and Wayne Angell, (a Fed governor and FOMC member) deemed to be an expert on gold explains everything, and how it was determined at that FOMC meeting that with the help of the major bullion banks the central bank would control gold's price (I think some of the evidence presented in the book suggests that there are times when the Fed is happy to allow it to rise), via the COMEX futures market where you can effectively go long or more often short on any given day the total gold that exists in the world many multiples without actually holding any of the physical. For me the penny dropped then, and ever since I read Dimitri's book I have worked on the basis that the only time the bullion price will ever reflect its true value is when the most powerful central banks probably through an agreement at one of their secret monthly meetings at the Bank for International Settlements decides the debt game is up and that the only way out is to either devalue the dollar and / or introduce some form of debt jubilee. I still hold gold of course, but barring that eventuality don't expect it to move too much up or down.
    • DS
      David S.
      4 August 2019 @ 20:05
      Daniel H. - Hope so. That is my bet. DLS
    • DS
      David S.
      4 August 2019 @ 20:15
      Terry J. - As events unfold, it is my opinion that the CBs will not be able to fix the exchange rate of anything or control interest rates. (I do not think that this is a bad thing. I trust volatile international FX markets with skin in the game over CBs.) This is not a long-term forecast. As MMT is implemented by both parties in the US, fiat-currency fear will grow. Gold and Bitcoin will be in demand. I am too old to believe in Bitcoin in a market revaluation, so gold is my choice. DLS
  • HK
    Himali K.
    2 August 2019 @ 11:31
    This was a fantastic detailed analysis. Thank you.
  • TR
    Travis R.
    2 August 2019 @ 07:04
    Well thought out and thorough. Thank you.