Powell is Fed's DoorDash: markets order, Jay delivers

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GEOPOLITICS

Ukraine

The Ukrainian attack in Russia grew the confusion about what’s coming next.

It appears to be a strategic and tactical mistake as Ukrainian troops do not make more progress in a region that was not defended by Russia, while Russia is making progress in the eastern front.

There logic might have to come to the table of negotiations in a situation of power, but Russia has now vowed to eliminate the regime in Ukraine.

Facing a potential escalation, the U.S. embassy urged American citizens to leave Ukraine.

At the same time, U.S. and Ukraine discussed expanding strike depth on Russian territory with American weapons.

When we talk about Nordstream II with a funny story about a privately funded Ukrainian operation. Ukraine involvement in this operation that hurt Germany’s industry, led Germany to reconsider its support to Ukraine in what could be seen as first signs of letting Zelensky down.

Middle East

Preemptive strikes against Hezbollah in Lebanon, led to a retaliation with Hezbollah launching a heavy barrage of rockets and UAVs to Western Galilee..

Israeli citizens then reported a mass number of flights canceled and delayed at Tel Aviv Ben-Gurion Air Port.

Europe

Europe is sinking into totalitarianism. After UK sending people to jail for comments on Facebook and other platform, France/EU arrested Pavel Durov, the founder of Telegram for keeping Telegram chats and channels private. Durov faces 20 yeast in prison on charges of terrorism, money laundering, and drug trafficking if he refuses to collaborate.

Free speech is dying in the free world.

DNC convention

NYT admitted that Biden was ousted by an internal coup, but was the right thing to do ?!? Very few points were made about policies, and the focus was set on preventing Trump reaching the office again. Lots of mentions of Trump, but Bitcoin wasn't mentioned a single time …

One major shift of the campaign was JFK Jr. joining Trump as he sees the Democrat party as an existential threat to the republic. JFK Jr. removed himself from the ballot in swing states, where it could well shift the balance in favor of Trump.

As a reminder, the Democrat party tried to prevent any dissenting candidacies by suing opponents in order to remove them from the ballot. This is also the case for Jill Stein, the candidate for the Green party on the left.

Global?

Monkeypox doesn’t appear to stick in the news stream, especially in a week loaded with politics, but no worries, a 30% mortality rate virus was identified in Massachusetts propagated by mosquitoes. A few cities along the Hudson River have deliberately chosen to implement curfew and lock-downs. Here we go again…

In the middle between Geopolitics and economy, The US federal debt is spiraling out of control, and by 2054, net interest costs are projected to hit 6.3% of GDP, nearly three times defense spending.

ECONOMY

The Bureau of Labor Statistics (BLS) finally admits that they have been lying about job numbers. (Commerce Secretary Gina Raimondo's response to the 818,000 jobs revision: "I'm not familiar with that.")

Nearly 1 million jobs disappearing. more than a third of all the jobs supposedly added over the course of a year actually never existed.

The BLS has long been used as a tool of propaganda by the executive branch, by distorting definitions, manipulating data, excluding discouraged workers, and revising past reports to create narratives that fit the agenda of whichever.

The FOMC minutes indicated a likely rate cut in September, with rising unemployment risks. Economic growth was downgraded, and the outlook for growth for 2nd half 2024 revised downward.

Nothing much significant, and it was a set up for Jay Powell's speech in Jackson Hole.

Powell’s speech was actually very dovish, quite confirming expectations about a potential rates cut of 50bps in September.

As a reminder, the Fed always delivered markets expectations since 2009 after the GFC, not wanting to take any risk of derailing the markets in the context of QE-infinity.

Jerome Powell declared “The time has come for policy to adjust. The direction of travel is clear.” and that’s all the markets wanted to hear.

2% inflation that was the target has now become the floor. Is the Fed repearting the same mistake as in the 70s in the face of a recession at the risk of triggering another inflation sequence?

Odds of a 50 basis point interest rate cut at the September Fed meeting rose to 23%, and 25bps is almost considered certain with a 78% chance.

MARKETS

No surprise here, the driver for markets is the interest rates the Fed went as close to promise to cut as possible for September.

The consequence was obvious on the announcement for all asset classes:

• Stocks/Tech up
• Vix crushed
• Bonds slightly up
• USD down
• Gold up
• Bitcoin up
• Commodities up?

Overall, last week events appeared to be mainly bullish, between dovish Powell’s speech, RFK Jr joining Trump, the largest inflows for Bitcoin ETFs on Friday, and Bitcoin reaching back above 64,000.

Another view of the insane VIX collapse after August 7th: this was the fastest VIX crush in history, following a massive VIX spike when the S&P500 was down only 3.3%. In other words, the fear was not really justified.

US Dollar selloff: interestingly, the dollar index sold off at every single stock market crash beginning (1987, 1998, 1999, 2000, 2001, 2002, 2007,2008, 2010, 2011, 2014, 2015, 2018,2020, 2022), specifically against japanese yen with guess what, foreign investor deleveraging from yen carry trade …

Let's discuss all this more this afternoon, Monday 5pm in The Croissant Files LIVE

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