25Aug3:32 pmEST

The Market Sure Bought Lots of Rumors...

...and now the issue is if they sell the news.

With Powell set to speak tomorrow morning out at Jackson Hole, markets are jubilant with optimism that he will continue to largely be a stock market softy, for all intents and purposes. 

Specifically, even though he has tapered assets purchases and made some historically aggressive rate hikes the market still thinks he will cower at the first sign of trouble and begin cutting rates again. 

While many are quick to play the part of the Fonzie and act too cool for school in terms of having a view and caring about Jackson Hole, the reality is that The Fed has been at the epicenter of markets since the global financial crisis. To think otherwise is to engage in historical revisionism, as The Fed's previous actions clearly have had effects on providing liquidity, confidence, and postponing recessions and full blown bear markets. 

But inflation is the boogeyman which blunts all of those tools. And just as Bernanke eventually came around to what he needed to do in 2008 versus deflation, my view is now Powell is coming around to what he needs to do to combat inflation in 2022 and beyond, just as the majority think he is a lost cause. 

There are still some lingering concerns, such as whether Powell will be bullied by politicians into not being as hawkish as he wants to be, or perhaps whether his hawkish stance is too little too late and we wind up with frightening hyperinflation by winter. 

Either way, we know for sure that Powell waited way too long to taper and then tighten, and the analogy to 1937/1938 still holds water for me. If so, he is turning his most hawkish as we head into a deeper recession into 2023 which, of course, should be wildly bearish for most equities, especially growth stocks. 

Overall, Jackson Hole this summer is, indeed, significant and may very well be the most significant Jackson Hole retreat I can recall since perhaps 2010 when Bernanke gave strong hints that he would do basically whatever was necessary to prevent a double-dip after 2008. 

I expect Powell's hawkish side to a turn to the dark side as he strives to cement his legacy as the Fed chair to save us from pandemic deflationary Hell only to then save us from runaway inflation a few years later. In my view, the market is clearly overlooking this scenario.

Inflation Reverses Things Yo... Hey, There He Is! There He I...


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