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Daily Missive

The Fed Holds, Markets Tremble, and A Memorandum Makes Overtures to Fiscal Responsibility

Loading ...Addison Wiggin

January 29, 2025 • 6 minute, 58 second read

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The Fed Holds, Markets Tremble, and A Memorandum Makes Overtures to Fiscal Responsibility

“Our discussions of the economy may sometimes ring in the ears of the public with more certainty than is appropriate.”

— Jerome Powell

 

January 28, 2025 – Well, it’s Jerome Powell’s big day. The financial press, comme d’habitude, is obligated to spend inordinate hours speculating what goes on behind closed doors at 1850 K St NW, Washington, DC.

Like a magician nervously prepping for his stage act, Mr. Powell will again articulate the Federal Reserve’s grand vision — or, more likely, assure us that they have a handle on the mess they helped create over decades of irrationally low rates.

Will he explain today, that the Fed’s balance sheet went into the red on September 15, 2022? Or that the bank no longer sends remittances to the Treasury to help balance the nation’s books the way it had done for the first 112 years of its existence?

Not likely.

The news cycle is short, so we’ll hear what their immediate plans are.

The consensus view — 9 in 10 economists polled by FactSet—is that the Fed will hold its benchmark rate steady today at its current range of 4.25% to 4.5%.

Not only did the Fed meet expectations, they also removed verbiage in their statement about inflation making progress towards the central bank’s target goal of 2%.

Most also predict Powell will hold off on cutting rates in March, meaning the next possible move might not happen until May 7. Translation? More waiting, more hand-wringing, and more market drama over the same recycled headlines.

Wall Street, as usual, is sitting on the edge of its seat, pretending that today’s pronouncements will provide actual clarity.

The reality? The economy continues to stumble forward, half-dazed, waiting for the next sugar high of liquidity. Traders will respond in kind.

In the background, while I’m wrapping my head around the macro data for the day, poor voice-challenged RFK Jr. is being skewered for views he doesn’t necessarily hold in the Senate and not being allowed to actually answer a single question.

Meanwhile, Trump is rolling out the greatest hits from the campaign trail, publicly staging deportation raids in a city near you and promising an onslaught of tariffs that’ll make Smoot-Hawley look like a friendly misunderstanding.

The memorandum the Office of Management and Budget (OMB) sent its constituent parts instructing them to pause spending while the budgets are reviewed for political pet projects caused the most entertaining round of confusion among legacy media pundits.

It was almost worth the time to watch Stephanie Ruhle try to make sense of her own purpose now that Biden and Harris have dropped from the headlines.

Powell, Trump, and JD Vance are all out in front against a backdrop of confirmation theatrics in Congress and the political circus where the same people who voted for reckless spending are now pretending to care about inflation, or the average citizen’s health, in the case of RFK Jr.

Amid this monetary and political business-as-usual, the stock market is what it is. It’s still trying to process DeepSeek.

The AI-fueled Mag 7 bubble, which we’ve been concerned about for more than a few of the 62 days the indexes hit historic highs in 2024, is stretching relatively thin.

On Monday, the S&P 500 Information Technology Sector Index saw its most significant single-day decline since September 2020, dropping 5.6%.

Nvidia (NVDA), the bellwether in the AI chip market, has been particularly volatile. On January 27, it plummeted nearly 17%. As of this morning, NVDA is trading at $121.19.

As we mentioned yesterday, Monday’s session is equally worth acknowledging as the flash crash on August 5, 2024, if for no other reason than the rising Wall Street index’s impact on the psychological health of traders, individual investors, and everyday Americans going about their business daily.

Turn Your Images On

To put this all into perspective… and even to show why the financial media noodle over the Fed announcements… why we’re expecting Donald Trump and Scott Bessent to put pressure on the Fed to lower rates… let’s look at some macro data bullet points:

* The Mag 7, even after Monday’s selloff, represents a quarter of the overall U.S. stock market.

* Their combined market cap of $13.2 trillion is more than four times the size of the Russell 2000 Index, which consists of 2,000 small-cap stocks and has a market cap of nearly $3 trillion.

* The Mag 7’s market cap is higher than any non-US stock market in the world

* It surpasses China’s A-share market, currently the world’s second-largest stock market.

* The Mag 7’s combined market cap is more than double that of Japan’s stock market.

* It is nearly equal to the combined size of the stock markets in the UK, Canada, and Japan.

Microsoft alone, with a market cap of nearly $3 trillion, is worth more than the entire Canadian stock market.

As we’ve pointed out ad naseum, the current level of market concentration is unprecedented going back decades, highlighting the outsized influence of these technology giants on global financial markets.

Every bull market has its idols — this one has Nvidia, Microsoft, and a handful of tech behemoths trading at nosebleed levels, all propped up by the belief that AI will fix everything from productivity to personal finance.

But even golden calves crack under pressure, and price movements this week hint that the bubble may be losing its helium.

The market fallout from all this? A waiting game. Powell is not likely to say anything too aggressive, revealing, or helpful in his statement.

Hedge fund managers still whisper about soft landings, but Main Street still sees higher credit card balances, stagnant wages, and a housing market that makes renting a shoebox in New York feel like a luxury purchase.

Trump, never one to shy away from a trade war, is doubling down on protectionism — because why not pour gasoline on the inflationary fire?

If he follows through, expect supply chain snarls, corporate groveling, and another round of “surprise” price hikes at Walmart.

So here we are, my friend, watching Powell perform on center stage while the economy keeps chugging along, waiting for its next masterstroke — or mistake. My bet? More muddling through, more volatility, and more reminders that the people in charge never really are.

If nothing else, Fed Day gives us a chance to lean back with some freshly brewed coffee and look over a wide array of data. Then get back to business: poking fun at the financial media. It’s almost satisfying. But doesn’t really help us make any money.

Buy gold, try crypto, but keep your capital safe in dividend-paying stocks, or take a good position in energy stocks. There was a selloff yesterday, so oil-related companies, for example, might be a good buy today. For more ideas, review your Grey Swan “model portfolio” here.

Regards,


Addison Wiggin,
Grey Swan

P.S. Tomorrow, we’ll be releasing some research we began in the fall forecasting the potential trajectory of the gold price, and multiple ways to play that trend.

Our research includes Federal deficit spending, the illusive money supply, various “sticky” macroeconomic data points and Trump-inspired political trends. It’ll be worth your time to take a look. Stay tuned…

P.P.S. “Right bleepin’ on to you, reader, Ms. Therese-Marie O’,” our friend Basil writes. “Kudos!!! She seems to have made all the ‘right moves’. Obviously, it was well-earned and deserving.”

You may recall we published a rather lengthy story from Therese-Marie here on Monday. “It is nearly 5:00 pm here in Denver, Colorado,” Ms. O’ had begun her correspondence,  “and I have finished my day with your email. Since you welcome comments and apparently read them, let me give you a glimpse into my perspective,” then she let us have it.

Basil’s response includes: “A lot of us have not made all the ‘right moves’ for whatever reasons. We, most humbly, ask for empathy and understanding. Not smugness and superiority.”

“Loved her comments,” Dan M. agreed, “Feel like I just encountered a younger soul mate. How can two strangers have so much in common? Best to all.”

Theres-Marie struck a chord. If you’d like to comment yourself, please do so here: addison@greyswanfraternity.com.

How did we get here? Find out in these riveting reads: Demise of the Dollar, Financial Reckoning Day, and Empire of Debt — all three books are now available in their third post-pandemic editions. You might enjoy one or all three.

Higher For Longer on Interest Rates

July 3, 2025 • Addison Wiggin

For now, the mixed economic data means stocks will likely trend higher, until there’s a crisis. And when there is a crisis, the Fed will finally make its move and aggressively cut rates.

And, for now, bond yields are still near their highest level in 15 years. Bond yields, even on U.S. Treasury bonds, are over the rate of inflation.

In short, it’s not a bad time to lock in bond yields now – which will go lower during a crisis, pushing bond prices higher. And in a crisis, today’s high-flying stocks, driven by retail investors with a fear of missing out – could easily get crushed.

Higher For Longer on Interest Rates
2025’s Seismic Events

July 3, 2025 • Addison Wiggin

Markets are humming, policy dazzles, but beneath the gloss — tech booms, liquidity surges, digital currencies — the very foundations of money, governance, and investor sentiment are cracking, realigning, even smoldering.

The post-World War II Pax Americana isn’t evolving; it’s being dismantled rather quickly.

What’s emerging is accompanied by a load of distraction and showmanship. So it’s important to focus on the actual events taking place right now that are going to affect your portfolio this year.

And, we can’t overstate this, the changes that are actually happening right now to your money.

Today, digital dollars masquerade as cash, tariffs are cloaked as protection, AI layoffs spun as productivity, private assets packaged as democratized. And yet, none of it matters if the final pillar — confidence — crumbles.

When belief falters, no trumpet of “seismic event” grants you shelter.

2025’s Seismic Events
When Decent Performance Meets High Fees, Investors Suffer

July 2, 2025 • Andrew Packer

Private equity tends to perform better than the stock market, provided you do so over time.

Private credit, a newer asset class but a rapidly growing one, also shows strong returns, as well as relatively high current income.

And if you have a retirement account, chances are you’re willing to think long-term.

Win-win, right? Not necessarily.

First, these new funds would also come with an incentive structure similar to investing in a hedge fund. That includes a higher fee than a market index ETF – think 2% compared to 0.1% (or less).

Plus, many of these funds have a hurdle rate attached to them as well. Once they clear 5% returns – which, with private credit, can be easily cleared by making deals with cash returns over 5% – additional incentive fees may kick in.

When Decent Performance Meets High Fees, Investors Suffer
The Labor Market Turns Sour

July 2, 2025 • Addison Wiggin

Several factors are likely at play here. Rising uncertainty over Trump’s tariff and trade policies – even though he’s largely walked those back.

A bigger factor? The rise of AI.

Many big tech companies have been making layoffs this year, citing increased productivity as a reason. For instance, Microsoft just announced another 9,000 in layoffs.

Of course, when an individual company announces layoffs, it’s usually bullish for shares. That company is doing the same – or more – with a smaller headcount. That’s lower costs and higher productivity.

But in a world where every company can lay off a sizable percentage of their staff, we have more unemployed consumers, who tend to cut back on spending.

The Labor Market Turns Sour