“Speak softly, and carry a big stick,” is the policy of Theodore Roosevelt.
It’s a policy that worked well during the rise of America during the Gilded Age.
President Trump, overseeing a new AI-fueled Gilded Age, follows a policy closer to that of Sean Connery’s Irish cop Jim Malone in The Untouchables:
“If they pull a knife, you pull a gun. If they put one of yours in the hospital, put one of theirs in the morgue.”
That, at least, seems to be Trump’s approach to the Federal Reserve.
While Trump is the Chief Executive, and while the Supreme Court has ruled Trump can fire agency heads, the Fed has gotten a special carveout — one where Trump can only remove someone for cause.
Already, Chairman Jerome Powell has taken flak for going over budget on the Fed’s building renovations.
But as we’ve noted before, Powell is just one voice in a chorus — lowering interest rates comes from an entire committee.
Yesterday, Trump went after Fed Governor Lisa Cook.
Why? Because Cook owns two properties — and the mortgage documents for both indicate that each are the primary residence.
A primary residence usually is lower risk for a lender. And as such, it carries a lower mortgage rate. That can mean thousands of dollars in savings over the life of a mortgage.
That’s also why lying on mortgage docs is a clear-cut case of fraud.
The Trump pattern is clear. The FOMC members are under scrutiny — with an eye towards removing more hawkish members for cause if possible.
Traders Brace for Jackson Hole
Trump’s attacks on Lisa Cook are but a prelude to the major event of the week — a speech from Fed Chairman Powell from the central bank’s Jackson Hole, Wyoming retreat this week.
This year, investors expect fireworks. If so, that’ll be the first time in about 9 years when a Fed speech from the Jackson Hole retreat mattered.
Back in 2016, then-Fed Chair Janet Yellen used the retreat as the opportunity to note that the U.S. economy was “resilient” and could support a quarter-point rate cut that September.
At the time, interest rates stood at 0.25%. They had been set at 0% since late 2008, until December 2015.
How times change!
In 24 hours, we’ll see if the symposium is its usual nothingburger … we suspect that real fireworks may not come from Jackson Hole, but from Truth Social a few hours later.
As Addison has forecast, President Trump may soon drop just eight words that reshape the financial independence of the Fed, potentially forever.
Best case? The market jitters this week are shaken off, stocks bounce higher into next week, then eye a later September/October pullback before ending the year at all-time highs.
Worst case? Powell comes out swinging, says something that humiliates Trump, and markets are clear to give into the recent weakness and break lower as Trump brings the proverbial gun to the knife that Powell pulls.
(More on this in today’s Grey Swan Live! at 11 a.m. ET today.)
Either way, our suggestion to take some profits from the market and raise some cash still feels timely, doesn’t it?
Walmart’s Mixed Outlook
Walmart (WMT) continued the trend of retailers reporting earnings this week. The company missed on earnings — but upheld its full-year outlook. Shares are slightly down this morning, but are up about 10% this year, outperforming the S&P 500 year-to-date.
Walmart is always worth a watch as it’s the last man standing in retail. In a recession, consumers who are out of work or are looking to spend less will head to Walmart.
During the 2008 crash, Walmart was just one of two of the 30 Dow components to gain that year. The other? McDonald’s (MCD).
When consumer spending drops — which it must at some point, given soaring credit card balances and stagnant wage growth — Walmart and McDonald’s will likely see a similar outperformance in consumer names.
Bitcoin Treasury Companies Under Fire
Bitcoin is doing a funny thing. After hitting all-time highs just a week ago, the crypto fell as much as 9% before starting to claw its way back.
Is bitcoin dead? Is the cycle over?
Nah, it’s just a typical week for bitcoin.
In fact, running the numbers, this is the 1,063rd time that bitcoin has dropped at least 8%:
Source:Twitter/X
This time isn’t different. But the fear is on another level.
Why? Bitcoin treasury companies — the official name for companies that are buying up bitcoin to hold on their balance sheet.
Companies like Strategy (MSTR) have slowed their bitcoin purchases, mindful about diluting shares or issuing too many preferred shares.
Some are arguing that these companies should trade at 1X the value of their bitcoin. It’s an interesting argument, but it raises questions about what premiums stocks should trade at in the first place.
Most companies trade at a premium to their assets. That includes real estate companies. It definitely includes tech stocks — where the assets are often intellectual.
The only real sector that trades at a discount to its assets is mining stocks. And that makes sense. 20 million ounces of gold in the ground will still cost many pretty pennies to dig up and refine.
But bitcoin already on the balance sheet is like gold that’s already been mined, refined, and sitting in a corporate safe. There’s an argument for some premium to bitcoin holdings, but it depends on how they’re being used.
For now, balance sheet bitcoin isn’t being used — it’s simply being bought as a way to escape the loss of the purchasing power of the dollar.
We suspect as long as this conversation goes on, investors will have extra volatility — which could mean several trading opportunities in the months ahead.
~ Andrew
P.S. Grey Swan Live! returns at 11 a.m. ET. We’ll be joined by Matt Clark, Chief Research Analyst at Money & Markets, one of our corporate affiliates.
Matt’s role is similar to mine as Portfolio Director — finding new investment opportunities and sifting through ever-shifting markets.
Matt has a background as an investigative journalist — but more importantly, he’s the only person I know who can find data and precise numbers faster than I can.
With markets hitting an air pocket this week and all eyes on Jackson Hole, this will be a timely and critical chat — exclusively for our paid-up Fraternity members.
Your thoughts? Please send them here: addison@greyswanfraternity.com
