I’ve said it before and I’ll say it again: Jerome Powell isn’t the best communicator.
Just ask the fourth quarter of 2018, when his (initially celebrated) “plain English” approach to conversing with market participants manifested in “long way from neutral,” a soundbite which quickly pushed stocks “a long way” from where they were before he uttered that infamous phrase.
However, Powell figured out how to compensate for an inability to lean on academic doublespeak. He identifies talking points that “work,” and then he sticks with them — assiduously. That reduces the odds of mistakes. If you hear Powell speak and think “I’ve heard this before,” that’s because you have. Verbatim.
He employed that approach on Tuesday in remarks to the Senate Banking Committee. Typically, these proceedings are closely monitored by market participants for nuance or something to trade on, and while I’m sure traders were listening, there wasn’t that much to hear.
Sure, there were some accidental zingers that made for good punching bags. Like, “no one can really identify an asset bubble.” I agree, for what it’s worth, but if I didn’t (i.e., if I thought it was possible to definitively spot a bubble and identify its cause), I’d point to the chart (below).
If you could somehow steel yourself and avoid making obvious jokes (which scarcely anyone can these days, especially on social media, where brain cells go to die), Powell hit all the “right” notes, precisely because they were the same notes he’s hit before without incident.
Yes, rates are rising, but that’s ok because it’s due to higher growth expectations. The bond market, Powell said, is just reflecting confidence in the economy.
Nobody at the Fed is going to be jumping any guns. They’d sooner jump sharks than they would tighten preemptively let alone prematurely. “The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” he said.
Ho-hum. Buy the dip.
“We shouldn’t underestimate the challenges we currently face [but] developments point to an improved outlook later this year,” he added. “In particular, ongoing progress in vaccinations should speed a return to normal activities.”
Ho-hum. Buy the dip.
The Fed will move “carefully and patiently over time,” he promised.
Ho-hum. Buy the dip.
You get the idea. It was par for the course and according to plan. When Powell “sticks to the script” he does it literally. There’s a script, and, for the most part, he’s reading it. Analysts called it “on-message.”
As Bloomberg gleefully pointed out (without so much as a hint of irony to account for the possibility that they were caught up in an echo chamber created by Twitter’s algorithms), “buy the dip” was trending “as day traders took to their screens.”
Whether the rebound that played out during Powell’s remarks is durable is an open question. He was probably right to say that higher yields reflect confidence in the outlook, and that higher prices for other assets can be similarly attributed to rose-colored lenses.
But as any day-trader knows, good news has an annoying habit of becoming bad news, at least as far as stocks are concerned.
5 thoughts on “Ho-Hum. Buy The Dip”
Rising yields show confidence in the economy? I remember working in investment banking, and, of course, higher financing rates were always associated with extra confidence in a borrower’s ability to repay their loans. It was their privilege for being less creditworthy. And for some, no rate was discussed as their creditworthiness was non-existent. Those were the borrowers for which we held the highest esteem as no rate was suitable for them. Maybe our government will get there soon.
The currency creator is not a borrower. Treasury securities are simply interest bearing dollars. When money thinks there is more interest to be made elsewhere, they go there.
As if … after TARP, TALF, QE (all of them), Taper Tantrum 2013, all of the BOJ’s “work”, all of the ECB’s “work”, the 4Q2018 J-Pow misstep, the 2019 repo fixes, the 2019 “mid cycle rate adjustments”, and the COVID-crash gymnastics … Jay and Janet would just let go of the wheel and let the car meander where it may, when they collectively have the power to stomp on the back-end of the yield curves (both nominal and real) whenever they darned well feel like it ?
What show have these folks been watching since 2009 ? Jeez Louise, it’s like “The A Team”, each episode ends exactly the same way.
“I love it, when a plan comes together” ?