Re-Election Cycle

The importance of having friends

Investors often debate about the political biases of the Fed and the Policy Makers.

I’m here to tell you that with respect to US 2024 Elections, it won’t be political biases that influence their decision-making. It will be personal biases.

Let me explain through a short trip down memory lane:

Exhibit A: Yellen vs Trump

In September 2016, Trump called out Yellen for being “obviously political” and that she “should be ashamed of herself” for keeping interest rates low (Never mind that once he got elected he called himself a “low interest rate person”. Shocking coming from a real estate guy!). And then once Donald got elected, he passed over Yellen as Fed Chair for a second term.

I think by now you all appreciate the power that Yellen holds, especially when it comes to financial markets. When yields were blowing up earlier this year and the Wall Street monkeys were wondering who would buy all those trillions of bonds that would be issued, I tweeted out this meme as a way to remind people that Yellen has unholy powers to get you to go all-in AND lever up your savings in bonds if she so wishes. And guess what, she did!

So imagine this seemingly nice old lady who can move markets on a whim, and so powerful she has a direct line to Kenny G, being insulted like that by a President and publicly! The insolence! Well, we will have none of that this time round will we? It’s payback time Donny …

Exhibit B: Powell vs Trump

I know people will find it hard to believe, but I’m a big fan of Powell. I respect him. He believes in public service and he made tough choices. I believe he was the one who stood up to both Trump and Yellen at various points which would have otherwise let the dollar trade at 50 cents on the dollar today (that’s funny by itself … the dollar trading at 50 cents on the dollar. Ok I tried…). Jerome also plays guitar so chapeau to you J. But I digress.

When Trump appointed Powell as Fed Chair he spoke glowingly of him: “He’s strong, he’s committed, he’s smart.”

Fast forward a couple of years later and Trump was tweeting “As usual, Powell let us down”. He also called Powell “clueless”.

Now my dear readers, let me remind you that Jerome is worth >$100m. He is a good guy in my book but he’s also human. And from that respect, the personal bias of a person like that is to NOT like someone who insults him publicly AND prevents him from doing his public duty to the benefit of the American people.

So I’m going to take a wild guess and assume that Jerome also doesn’t like Trump and doesn’t want him as his Boss again. Just a wild guess :/

Re-Election Cycle

Which brings us to the meat of this Shrubstack, and which follows up from the “Wealthflation vs Plebflation” analysis of the previous Shrubstack.

Lets make up a story to help us visualize the decision making process:

Tamagotchi Yellen: “Jerome, I can’t stand the thought of HIM getting elected again. We need to act. I’ll be doing my share. In the next QRA, I’m gonna issue so many bills it’s gonna make Argentina blush! That will do it. Then everyone’s gonna buy mah bonds and ease financial conditions into the elections. But you got to do your part too. It’s team work after all!”

Jerome: “Janet, I hear you. But I keep the painting of Arthur Burns in my room for a reason. We can’t afford a repeat of the 1970s. I won’t have it.”

Tamagotchi Yellen: “Jerome Jerome my Jerome. Don’t worry. Look at this chart by Apollo’s Torsten Slock. It plots the current inflation path and compares it to the 1974-1982 period. What do you see? Inflation was going DOWN for TWO years after it peaked in 1974. We are on the same path now! Inflation will be slowing down into 2024! Maybe it will slow down into 2025 too! By then the elections will be over, and we will have defeated that orange “£$£$(%* menace! And once we win, we will make sure we WON’T repeat Arthur’s mistake! In 2025 we will tighten up financial conditions again so don’t have a repeat of the 1970s!”

Jerome: “Pinkie Promise?”

Tamagotchi Yellen: “Pinkie Promise” <crosses her fingers behind her back>

Of course this story is completely made up, but it’s such a cool visualization that you will be thinking about it throughout 2024. You are welcome!

If we drill the details of the chart above as per the table below, you will notice how similar 1974 is to 2022 and how similar 1975 is to 2023. And by some scary coincidence both 1976 and 2024 are election years! This is some really spooky stuff of history repeating itself. In 1976, inflation was lower than 1975 and the SPX was up +19%. If history does repeat itself we can assume that in 2024 inflation will be below 3% and the SPX will be above zero by the end of the year.

A little side note: In the 1976 election, the incumbent President Gerald Ford LOST to Jimmy Carter. So maybe this whole circus is about generating moarrr Wealthflation and the election is just an excuse! I can picture the Policy Makers and their friends after the election: “It’s not about the President we didn’t elect, but about the Wealth we accumulated along the way"!”

Once again I risk being branded a conspiracy theorist, so I will leave you with the X-tweet by Larry Summers, basically saying out loud what all the other Policy Maker victims of Donny’s bullying cannot say publicly, thus confirming the inherent personal bias of some people within the System:

Summary for traders with ADHD:

• In the 2024 Elections, we need to take into account the personal biases of the Policy Makers

• These personal biases incentivize Policy Makers to work in favor of the Incumbent (or at least against Donny)

• It’s interesting to compare the 1974-1976 period to the 2022-2024 period, especially given both 1976 and 2024 are election years

• Policy Makers think they can help the incumbent President by stimulating the economy and generating Wealthflation (“Save the Ponzis, Save the Plebs”). But at the end of the day it doesn’t matter who gets elected: “It’s not about the President we didn’t elect, but about the Wealth we accumulated along the way"!

• If you insult people publicly, don’t expect them to help you down the line! It’s good to have friends! So treat them well!

And with this last thought, I wish you and your families a Merry Xmas and a Happy New Year!

PS This holiday, do consider putting Xmas lights on your shrubs too. Putting Xmas lights only on Xmas Trees is a little bit shrubophobic ;)

Disclaimer:

This isn’t financial advice. This is the equivalent of reading MAD magazine but for finance but worse: This is the trading blog of a shrub.

Don’t be Stupid. Seriously. How many times do I have to repeat this ….