RIP Mr. Volcker… Some Thoughts

Paul Volcker has passed away and that bears a few words, not to celebrate or criticize him, but to take a look at US central banking in general with regard to its motives and modus operandi.

First, Twitter had a financial guy we’ve all seen on TeeVee with a nice tribute.

And then a sometimes-Twitter tweeter added his $02.

You see, around the time I installed the orange arrow on the chart of the Continuum a year ago the stock market was throwing a fit and bewildered market participants and the US president were demanding Jerome Powell’s head as he staunchly refused to ease the Fed Funds rate. ‘Ba ba ba but the stock market is tanking!!!’ implored casino patrons addicted to an easy fix.

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What is the meaning of this? Well, Jerome Dead Eye Powell held steady in a mini expression of what Volcker did decades ago after inflation had gotten out of the barn. And guess what, he’ll do it again if needed. Ah, but here we are today with the safety of a Continuum that’s been hammered to an opposite condition to last year’s uproar. From the post linked above…

There is a reason I made such a big deal about the breakout and that was because something happened that has not happened in decades; the 30yr yield broke the EMA 100, closed October in breakout mode and remained there through November.

And we wonder why the Fed is staying its course? As noted on several occasions in NFTRH and in public, the Fed is not for you, me, Trump or necessarily the stock market. Ultimately, the Fed is for the Fed and the Central Banking system and it was simply not going to fall on its sword and expire at the hands of breakout inflation, greed and asset bubbles all around.

I continue to maintain that an impulsive breakout in yields (the blue arrow above shows the implied target of the yellow shaded pattern) would have blown the Fed’s racket. How do you maintain an orderly system of inflationary operation – that has endured through many decades – if bonds are burning and inflationary asset bubbles (most notably in stocks on the post-2008 bubble engineered by Bernanke-era monetary policy) are raging? The answer may well be, you don’t.

So yes, Paul Volcker was the last great Fed Chief (in my opinion). But that was only because the bond markets and inflation signals of the time demanded he be. My bet would be that under the same circumstances Jerome Powell would be great too. He gave a hint as such a year ago.

Of course, it’s all temporary water under the bridge one year later with so many of the market’s signals (including the S&P 500’s price) doing opposite what happened a year ago. After Q4 2018’s uproar the bond market went on to transform the current Fed chief into Jerome ‘Dove Eye’ Powell and stock market bubble heads are in a 180° different mindset than a year ago. It’s comical if you look at it a certain way.

You gotta love the markets. Always pinging from one type of hysteria to the other. Don’t be surprised if in a few years we are reading headlines about Jerome Powell, the greatest inflation fighter since Paul Volcker. Or not. It’ll all depend on what happens the next time the Continuum above goes for the limiter.

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