Your Way; It Won't Work

Kevin Warsh looks to be well on his way through the Senate process of securing the next Fed Chair position. To be sure, Warsh is likely dealing with tons of back-channel pressure from the White House to cut rates, much more than 25 bps, and to cut much sooner than later. 

However, we have noted numerous times of late with Members, markets have a deep and extensive history of putting new Fed Chairs to the test, with one of the most famous instances coming with the 1987 crash a mere two months after Alan Greenspan took over in August of 1987. 

In the current market setup we have inflation clearly back on the upswing after this morning's CPI (as if you needed to that know). The issue is that we are not merely dealing with a spike in oil and gasoline prices. Instead, it truly is entrenched inflation. And with the likes of wheat, below on the WEAT Fund daily chart, spiking there are tons of global ramifications from this development, too. Beyond wheat, CORN and SOYB continue to act bullishly in the soft commodity space, with DBA a catch-all ETF for the group. 

Despite some long overdue softness in the semiconductors today, equities overall remain remarkably complacent--Look no further than a red VIX as I write this. Furthermore, rates on the 10-Year are right back near multi-quarter highs threatening a fresh breakout. 

All of this is to say that if Warsh can convince the FOMC (a big "if") to cut rates immediately or to signal an easing cycle ahead, the bond and most commodity markets are well on their way to spiraling out of control. 

In addition, today there was plenty of talk about a motor oil shortage as a domino effect from the Strait of Hormuz ongoing disruptions. I expect this to be the first of many dominos to fall in light of the multi-month closure.