What’s Worrying Powell Now?

Abraham George Macro View

Whenever the Fed Chairman sits down for an interview and wants to address the public, it is normally an important one and a serious matter. Especially when the interview is on ‘60 minutes’. This type of mainstream media interview and Q&A session is rare but whenever it happens we need to pay attention.

The Fed and the administration’s main responsibilities are to navigate the economy through monetary and fiscal policies. But one of their biggest unwritten responsibility is to inject confidence among the general public through public appearances.

Back in 2009 and 2010 when Bernanke was Fed Chairman and was directing the Fed through the crisis, the media was destroying him and the Fed. Even other global leaders were taking shots at the Fed. The Fed was trying to restore confidence, and it wasn’t going well. So Bernanke took to ‘60 minutes’ to speak directly to the people and set the record straight. He shot down the media criticism and said he was seeing signs of “green shoots” in the economy. The first Bernanke interview in March 2009 set the bottom in the stock market.

For Powell the first sit down with ‘60 minutes’ was in Mar 2019. It was a response to the growing risks of a confidence shock - the Dec 2018 stock market decline, Brexit drama and China/US trade uncertainty. Powell took it as an opportunity to tell the public that the economy is doing well, despite the media’s doom and gloom stories. Stocks bounced and rallied 9% over the next month and went on to make new record highs.

Yet last year, Powell made another ‘60 minutes’ appearance. It all happened when the negative interest rate and a deflationary spiral was rampant. Stocks went south but after Powell’s interview stocks ran up 17% in three weeks.

So, what’s worrying Powell now? Stocks are at record highs unlike previous times. But a confidence risk is bothering him. The inflation threat is now becoming widely respected.

With that, an opinion is emerging that the Fed might be moving rates far sooner than they have led us to believe. That will be a negative signal for stocks. So Powell wanted to reiterate and wanted to confirm that the Fed will continue to support the economy as long as needed and until a ‘complete recovery’ is visible they will not raise rates this year. This clearly has created a buy signal for stocks.

Equities

The bullish % in the investors intelligence Advisors survey pushed to 70.4 which takes sentiment back to the extremes of the previous highs. The 5-day S&P DSI (daily sentiment index) reached 87.8% on 13 April carrying to a new level of optimism. The stock market’s rally seems too stretched and a snapback decline can happen any time and it can be sharp.

Bonds

The countertrend rally that started on Mar 18 from 153^07 has reached 157^14. Looks like bonds are tracing a zigzag pattern either a single or a double. Looks like a top can be in the vicinity of 157^30 to 158^15. A fifth move down should take us to new lows.

Euro

The rise in Euro to 1.1988 should find a top around 1.2040 or lower. A five wave decline should confirm the next directional move.

Gold

We believe the move in gold from 1677 the low on Mar 31 to 1759 the high on Apr 08 is a countertrend move. Whenever this terminates and a break below 1677 is visible a move to new lows can be considered.

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.