"Save the Ponzis, Save the Plebs"

Did Jerome Powell watch "Heroes"?

“Save the Cheerleader, Save the World”

I’m sure there’s a few of you here old enough to remember the hit TV series “Heroes”. To cut the long story short, there were a bunch of people with super-powers and some guy came from the future and told them that the World is going to end unless they save the Cheerleader, a central character in the show: “Save the Cheerleader, Save the World”.

I have a feeling that the Policy Makers (aka Yellen) want to play a twisted version of this plot. Let me explain:

Yellen definitely wants a soft landing (Please refer to last week’s seminal piece where the conclusion was that Yellen wants to take the role of Maverick from Top Gun and land this economy "softly” (Jerome thinks he’s Maverick but he’s probably Iceman, or even Goose)).

To achieve soft landing you basically have to pre-empt a big pickup in job losses i.e. as soon as you see the turn in the data, you act (or even go Mach 10!).

When / If the Fed acts, then Financial Conditions loosen and money flows freely in the system. Already, with not much done except a few words from Fed officials and the Yellen QRA tweak, Financial Conditions are back at the highs of the summer! Imagine now what they will do if unemployment actually picks up! (the chart below is the Bberg Financial Conditions Index, it’s not great but it fits our narrative so lets just go with it)

Where I want to get to is that the inevitable consequence of trying to steer the economy to a soft landing is that we will get money flowing into more speculative parts of the economy. Think of it like the Covid print but much smaller scale.

So imagine this for a new TV series: a super-powered Yellen with time travel abilities comes from the future and visits the Fed officials with a menacing omen:

“Save the Ponzis, Save the Plebs” “Save the Ponzis, Save the Plebs”

Let me translate this to those of you at the back: “If you want to turn the economy and save those jobs, then you have to pump liquidity in the system and it doesn’t matter if the Ponzis go to the moon again!”

Now it’s up to the Fed officials whether they heed the Sirens’ call, because the dilemma still remains that they prematurely declare victory against inflation and we keep doing this dance for another decade just like the 1970s. Given how quickly financial conditions turned in 2 weeks, that’s not a risk to ignore (though short-term it appears unlikely).

Anyway, here’s an exclusive photo of Yellen from the Future, so you can recognise her in case she visits you too.

Disclaimer:

This isn’t financial advice.

This is the trading blog of a shrub.

Don’t be Stupid.