I suggested Friday that “incredulous” was probably too strong a word for how market participants feel about the ostensibly counterintuitive action in rates.
Incredulity often implies vigor and frustration, whereas right now, we’re in a somnolent June drift. If incredulous isn’t quite right, “surprised” might work when it comes to characterizing views around this week’s bond rally juxtaposed as it was against another hot CPI report.
Obviously, “transitory” components explained a good portion of the overall jump in prices, but let’s just say that if yields had ended the week higher, it wouldn’t have been difficult for journalists to write the copy.
One person who’s “surprised” is Larry Summers, who works in the gig economy now as a paid contributor to Bloomberg. That “job” entails regaling David Westin with ominous predictions about the ramifications of Joe Biden’s stimulus plan every other week.
“I didn’t anticipate the kind of decline in nominal yields that we’ve seen,” Summers mused. “I’m surprised. I would have expected that yields would have risen more.”
Well, Larry, you would have been wrong — although “wrong” isn’t a word Summers is particularly fond of when it applies to him.
He went on to chastise the Fed, whose persistence in accommodation in the face of a “booming” economy “defies good sense,” according to Summers.
Those remarks echoed Stan Druckenmiller who, in an email to CNBC’s Joe Kernen on Thursday, said “the market is not speaking.” That came as “mute” markets shrugged off the hot inflation print. Druckenmiller then accused the Fed of “canceling market signals.” (One of CNBC’s favorite morning shticks involves billionaires sending Kernen mail so he can treat it like “breaking news” on television.)
From a 30,000-foot perspective (i.e., stepping outside of the debate around how rates and equities “should” have reacted to a single CPI print), it’s not so much that Summers and Druckenmiller are “wrong.” But central banks have been in the business of smothering price discovery and underwriting all manifestations of short vol / carry at least since the Robinhood crowd was sitting on the living room floor, consulting with a stuffed giraffe on the logistics of placing various blocks into the correctly shaped slots on a colorful plastic table.
Druckenmiller knows that better than anyone on Earth. He’s not saying anything new. At this point, he’s just a source of pseudo-warnings, clickbait and headline-friendly soundbites dressed up as “wisdom.” Druckenmiller epitomizes “Hall of Famer.” But let’s be honest — he’s in the twilight of his life and career, and with nothing left to do other than play around with his own billions, he’s emailing Joe Kernen.
Summers, for all the derision he gets, is actually engaged in a more urgent debate. You might have a hard time taking him seriously. His ongoing critique of efforts to tackle problems associated with his own theories is rife with irony and admits of countless “Of all people!” jokes. But an academic discussion about the interplay between fiscal and monetary policy carried on with at least a veneer of intellectual earnestness is, I’d argue, infinitely more useful than Druckenmiller emailing a cartoon character to complain about Fed policy for the umpteenth time.
And while we’re being brutally honest, note that what these heavyweights say is totally irrelevant for market participants on any kind of near-term time horizon. For tactical purposes, it’s completely useless. (Oh, policymakers murdered price discovery? Thanks, Stan. I was wondering why BTPs are at 74bps. What’s that, Larry? Sometimes the best laid plans of policymakers go awry? Appreciate the reminder. And you should know.)
Have you ever heard of Alicia Levine? No? Me neither. Apparently, she’s chief strategist at BNY Mellon Investment Management.
Her CV is impressive, so maybe I should know her. Her official bio gleefully notes that “Alicia is a regular on-the-record source, live broadcast commentator and breaking news analyst for a variety of media outlets including Associated Press, Barron’s, Bloomberg, CNBC, CNN, Financial Times, Fox Business News, New York Times, Reuters, Wall Street Journal, Washington Post, and Yahoo! Finance.”
A while back, I made the mistake of asking, in a tweet, if Karen Finerman is someone I should know after she responded to some off-the-cuff remark I made about what Jamie Dimon might be like as president. One of her fans was irritated that I wasn’t aware of her existence, and she seemed somewhat vexed too (“I don’t know how I got in your TL. Good luck to you,” she told me.)
Anyway, the point is that irrespective of whether Alicia Levine is like Karen Finerman (i.e., someone other people know and assume I should know too), I’m confident that neither Levine nor Finerman is as famous as Summers and Druckenmiller, and yet, in the wake of May’s CPI report, Levine managed to offer something far more useful for market participants than those two venerated legends.
“The Fed has convinced everybody they’re going to roll with it,” Levine told Bloomberg TV and Radio Friday. “A mild inflationary environment is actually great for equities, it’s great for businesses, it’s great for wages and you don’t have a Fed that’s going to come and kill it all,” she added. “So you’ve got cyclicals going and you’ll have tech going [too].”
There you go. That’s it right there. Whether it’s “right” or not doesn’t really matter. The point is that it’s incisive and useful.
So, forget Summers and Druckenmiller. Just ask someone I’ve never heard of what’s going.
Maybe Finerman had a good take too. I don’t know. Because I blocked her when I discovered she’s a TV personality.
Apparently, I’m the only one in the world who thinks there’s something wildly unnerving about the prospect of being tweeted “at” by someone who, if I were to turn on the right channel, at the right time, might be staring back at me, through the screen, just seconds after sending a tweet my way.