Today’s the day.
In a few minutes, Jerome Powell will step in front of a microphone to deliver his last policy speech from the central bank’s Jackson Hole symposium.
If you’re a bingo fan, there may be time to whip up a card. Look for Powell to drop terms like “accelerating inflation,” “data dependent,” and “higher for longer.”
Two weeks ago, traders saw a September rate cut as a lock.
As of late last night, traders were moving towards more of a coin flip:
Polymarket odds have narrowed significantly since the last jobs report as the Fed questions the point of waiting. (Source: Polymarket)
Either way, positioning in the options market suggests a 1% move in either direction.
That’s a big move for a Jackson Hole speech — but not for markets as a whole. And if we get a drop, it’s still part of a necessary pause after rallying heavily since April.
We’ll know more soon enough… and Addison and I will review the implications of the Fed’s speech in the coming days.
Powell’s Legacy: Harder than Greenspan, Softer than Volcker
For now, Powell has a chance to leave on a high note, citing the importance of the Fed’s independence in defiance of Donald Trump, who first elevated him to that position during his first term.
But make no mistake. Like all Fed Chairs, Powell has a mixed legacy. In particular, Powell botched the post-COVID inflation, citing the jump in prices as “transitory.”
At a time when headline inflation was topping 5% on an annualized basis for the first time in decades, homeowners were able to refinance their mortgages at under 3%. I know — I was one of them.
My wife, a top realtor in Palm Beach County (shameless spousal plug), even managed to find a 15-year mortgage for 1.99%.
With rates like that, it’s easy to see why homeowners don’t want to move — home prices are higher and interest costs are more than double.
That was the kind of move that Alan Greenspan would have made — keeping the financial system happy and flooded with money.
When it became clear inflation wasn’t transitory, Powell moved to aggressively raise interest rates, leading to a bear market in 2022. Powell was able to do in a year what his predecessor Janet Yellen couldn’t — get interest rates back over 5%, a level last seen over 15 years ago.
Overall, Powell hasn’t been as focused on wringing out inflation as Paul Volcker, opting to lower interest rates right before last year’s Presidential election.
The Fed’s “Data Dependent” Dilemma
Whoever runs the Fed, there’s a huge problem. The central bank likes to claim that it’s “data dependent.”
But as we explored yesterday in Grey Swan Live! with Matt Clark, the Chief Research Analyst over at Money & Markets, the data is flawed.
Over one-third of items used to calculate inflation are now based not on actual data, but on estimates. And the labor market’s massive revisions each month means that the headline data isn’t useful — although market algos trade off of it each month.
It’s been so bad that President Trump fired the head of the Bureau of Labor Statistics (BLS). The incoming head of the agency has discussed doing away with the data entirely until something better can come along.
As Matt noted yesterday, it would be better to start from scratch when it comes to collecting economic data. But given how government inertia works, there’s a slim chance of that happening.
If the Fed has to figure out whether to deal more with inflation or the labor market, it needs more accurate data. Period. Until then, it’s flying blind.
Cracker Barrel Crumbles
In a week with mixed results for stocks, the drop in Cracker Barrel (CBRL) stands out.
The restaurant/store had an old-timey country charm.
But following a rebrand, including removing the cracker barrel from the logo, it looks more like a no-frills place — hold the charm.
Cracker Barrel’s rebranded logo (Source: Cracker Barrel)
The “go woke, get broke” crowd is having a field day, seeing the change driven by politics and removing a more rural, conservative vibe. Chances are, the average customer likes the old-time feel, irrespective of their politics. The rebrand looks more in-line with other restaurant chains, such as First Watch.
Either way, the market thinks it’s a bad move too. The company’s CEO has now managed to see shares drop 45% since she started her tenure, with the stock down over 15% in the past month.
Of course, Cracker Barrel isn’t the only company to rebrand in recent years.
Just consider McDonald’s (MCD). Over the past few years, locations have been renovated, losing the PlayPlace for children to enjoy, and focusing more on the drive-thru experience.
It’s a far cry from the restaurant’s early days:
McDonald’s follows the trend towards drab. (Source: Revolver.news)
Today’s scholars have many sources to study the long, slow decline of the Roman Empire. To see the decline of Pax Americana, simply look at how drab our fast-food joints have become.
And don’t get me started on the cars — the cherry red or turquoise colors of the 1950s have given way to silver, white, and black cars on the road today.
In the 1950s, Americans were a lot poorer in terms of technology, and overall per-capita wealth. But their cheery outlook was reflected in color schemes that would pop today.
A lack of color in our lives is just one more thing that we’ve lost after more than 50 years of abandoning the gold standard.
Hopefully, future historians will look back on the global fiat currency era as a small hiccup amid humanity’s longer progress.
~ Andrew
P.S. Yesterday’s Grey Swan Live! was a tour de force. Matt Clark kindly went through his philosophy on the importance of using systems-based investing. We’ll have the interview up on the site for members later today.
Systems help take the emotions out of trading, and can ensure that you don’t make the wrong move at the wrong time.
Matt also sees challenges with the Fed’s economic data, and some strength in sectors such as gold and resources now. If you’re not already getting the free insights from Matt and the Money & Markets team, it’s worth a look.
And we’ve issued new research yesterday, with Grey Swan Investment Fraternity member Mark Jeftovic, looking at how technological advances could accelerate in the years ahead, leading to a positive Grey Swan event we’re calling The Quickening.
It’s worth spending some time following up on our latest research. And for paid-up members, check out our Library of Special Reports.
Whew, what a week!
Your thoughts? Please send them here: addison@greyswanfraternity.com
