All my plans for my Hard Rock Cafe in Kabul has gone for a toss. On a serious note, I can’t get over the Afghanistan fiasco. The 20+ year exercise was a $2.2 trillion scam. Somebody pocketed all the money and it surely was not the people of Afghanistan. The money mostly went to arms dealers, corrupt US military personnel and contractors and corrupt US politicians. Surely, the Taliban gets to keep the weapons. In the coming months, they will have to figure out how to operate some of the sophisticated stuff or will the Americans help them in figuring that out.
If it was a Taliban style punishment, the people responsible for this would have been in prison never to see daylight again, beheaded or publicly hanged. But the people responsible for this are from a democratic republic with a capitalist vision. So they sit on the boards of Raytheon and Boeing. They advise the nation on ‘defense’ issues and war strategies. They will have to find new green pastures to continue their game.
Let’s turn to the markets. The Fed has been gradually turning their tune in recent weeks on monetary policy outlook. Whenever they do this, it is a good idea to pay attention. The Fed could be setting the stage for a wind down of QE and moving forward the expectations on raising interest rates. The Fed no doubt will be confronted with hot inflation, with trillions of dollars of additional fiscal stimulus again to hit the markets.
In a recent Town Hall meeting, Powell went to extra lengths to say how much he admires Paul Volcker. He thinks Volcker was the most distinguished public servant in economics in his lifetime.
As Bernanke was known to be a student of the Great Depression, he happened to be the right guy at the right time to navigate the US economy from a second Great Depression. I think Powell seems to be spending a lot of time studying what this inflation period could be, though publicly he has been stating that it will be transitory.
Well, if he thinks that he could navigate the way Volcker tamed inflation and led the economy to a successful path, then he is totally mistaken. The world has changed a lot since Volcker. There are many dependencies and other considerations that economics cannot give you good answers.
For the first time in forty years, there is a real threat about double-digit inflation. Will Powell respond as aggressively as Volcker responded? Even if he wants to, will the government allow it? These are some of the questions we all should be worried about.
Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.