Summary – A top-down review of interesting calls and comments made last week in Treasuries, monetary policy, economics, stocks, bonds & commodities. TAC is our acronym for Tweets, Articles, & Clips – our basic inputs for this article.
Editor’s Note: In this series of articles, we include important or interesting Tweets, Articles, Video Clips with our comments. This is an article that expresses our personal opinions about comments made on Television, Tweeter, and in Print. It is NOT intended to provide any investment advice of any type whatsoever. No one should base any investing decisions or conclusions based on anything written in or inferred from this article. Macro Viewpoints & its affiliates expressly disclaim all liability in respect to actions taken based on any or all of the information in this article. Investing is a serious matter and all investment decisions should only be taken after a detailed discussion with your investment advisor and should be subject to your objectives, suitability requirements and risk tolerance.
1.Words of Powell
The action in the Stock market and in the Treasury market showed how stunned investors were by the words of Fed Chair Powell on Friday, August 22, 2025. It might prove to be one of the most remarkable & influential Jackson Hole speeches. The best one sentence description was from Anastasia Amoroso, Partners Group chief investment strategist (“we” below is Powell speaking for the Fed).
- “We are seeing more weakness, we are also expecting more weakness & it can develop quickly“
And Mr. Powell is 100% correct in his new vision. It seems clear that he now sees what we have been seeing, the mental vision we experienced last week, the apparition that made Macro Viewpoints Reduce the MV Over-Night Rate from 3.75% (established in April 2025) by 50 bps to 3.25%.
By the way, this new ONR of 3.25% matches what Rick Rieder of BlackRock has said, in a couple of TV appearance, to where the Fed Funds Rate can drop without causing any inflationary consequence.
Clearly the Fed’s focus has now shifted to employment from inflation. And that is exactly what Jeff Gundlach prophesied in May 2025 in his appearances on CNBC. In fact, he said on May 7, 2025, that the Fed may embark on yield curve control.
The reality is that what is happening in the U.S. economy & labor market is not surprising at all. The best explanation we saw came again this week from a clip featuring Dr. Lacy Hunt. Below are key excerpts from his explanation:
- I believe that monetary policy is too restrictive for the economy to continue moving forward with a 2.5% inflation rate and positive economic growth unless the Federal Reserve reverses itself;
- there are instances when the actions of the banking system and its customers can exert an endogenous influence. And that’s what happened since November. When firms went out and individuals in business went out to buy things in advance of tariffs, they had to pay for it and they didn’t have sufficient cash balances to do so. So what did they do? They went into the banks and they drew on their lines of credit. And in the case of a consumer and small business, the lines of credit are very expensive. And so what we witnessed beginning in late November is a fairly significant uptick in both sides of the bank balance sheet, loans and deposits.
- But this buy in advance is now being reversed. And in the last 2 or 3 weeks, we’ve actually seen the other deposit liabilities and nominal dollars fall about $18 billion. Not a small … change.
- And so money supply, the Fed is going to very quickly find out that it’s much weaker than they think it is. …. Historically, world dollar liquidity grows at 10% per annum and it’s currently in negative territory. It’s not as negative as it was at the worst point of the last couple of years, but it’s still contracting, which tells me that this upturn that we saw during the front running period is going to be reversed.
- They’re [the Fed] sitting tight. The Fed likes to say that we are data dependent. We want to wait and see. In my opinion, there’s no reason to be data dependent in this environment. If the tariffs remain in effect, their ultimate impact is deflationary, not inflationary. And moreover, it comes at a time when money supply is also contracting.
Dr. Hunt starts in 1914 which was the first full year of operations for the Federal Reserve. And he says:
- What you’ll discover is that we are in the ninth contraction since 1914. Contraction number two was the one that led into the Great Depression. and all of the other contractions coincided with recessions.
- And it’s going to get more negative here as we go forward. In my opinion, my feeling is that if we’re not in a recession now, we will be.
At this point, it is crucial to restate a point of Dr. Hunt that we quoted last week in Section 3:
- “in terms of a whole host of economic measures, the economy primarily keys off the monthly employment report- payroll jobs; the payrolls jobs report is a very limited survey; just 360,000 firms, admittedly large firms; but we have 12 million firms in total; So the BLS has to go from this small to the big sample; moreover the BLS has no current information on what is happening at smaller firms;”
Just think for a minute. Economic weakness does affect the small & weak businesses first. Large companies, like the ones that are the majority in Big-Cap stock indices, like the ones Fin TV focuses on, are probably the last ones to feel the weakness. By that time, the weakness & slowdown has become pervasive in the much numerous small sector. Hence, Dr. Hunt says:
- “it’s going to get more negative here as we go forward. In my opinion, my feeling is that if we’re not in a recession now, we will be. It’s kind of hard to have confidence when such a critical variable as payroll employment is so grotesquely overstated relative to the business employment dynamics, which is your full sample of 12 million firms. And keep in mind, when you overstate the job gains, then wage and salary compensation’s overstated, personal income is overstated, gross domestic income is overstated. And if there’s less wage and salary income and personal income, then it enforces the notion that one of the reasons we see these constant downward revisions in consumer spending is that something called survivorship bias”
If you watched the face of Chair Powell as he spoke at Jackson Hole, you might think he has seen an apparition that scares him. And we wonder if that apparition is looking at the possibility of a grotesque overstating of wage, salary, income of the majority of working Americans.
If true, then how on earth is the latest inflation measure at 2.4%? Is the shelter component so overstated that the inflation measures get bloated? We have no clue but we do wonder if this myopic focus on large-cap employment statistic might again drive the S&P to another liquidity driven high as it did in October 2007. Recall that the slow but pervasive & virulent spread of the underlying weakness became obvious in the summer of 2008.
That brings us to:
- Trader Z@angrybear168 – 8-22 – $SPY NYSE 91% up day, rare sight.
And,
- Trader Z@angrybear168 – 8-22 – $SPY weekly tension closed strongly bullish, a regime shift.
This is not just in USA:
- Sentiment Trader email titled In sync in the Asia-Pacific – 8-23 – Key points:
- – Every MSCI Asia-Pacific country index closed above its 200-day average
- – Similar participation trends bode well for the continuation of the global bull market
- – Commodities rallied 100% of the time over the subsequent six months
.
Makes sense with Dollar down 90 bps on Friday & Treasury Rates down 9-10 bps from 7-2 years & down 4-6 bps at the long end, right?
Why do we whole-heartedly support the new vision of Fed Chair Powell? Because Wave Economics teaches us that when plates heave & seem ready for slipping down, the only solution is OUT-RUN & OUT-SIZE the slippage with measures to stop the decline. This economy needs the over-night rate to fall by 100 bps to 3.25% pronto even if the September labor numbers don’t yet show the economy’s plates shifting underneath.
That brings us to the only recommendation we heard from Dr. Hunt in his clip below:
- “I feel that there is great value in the long treasury market and I know that I’ve given that prediction before. The bond yield here is very close to five. It’s been above five briefly a couple of instances. Every time we go above five we don’t stay above five very long. The latest inflation measure is 2.4%. That includes the haywire measures of shelter which are a huge component. Lot of serious concern that it’s overstated excluding the shelter component.“
- “Inflation rates only one and a half%; that’s a huge differential between 5% and one and a half or two and a half. And historically those differentials between the bond yield and inflation have not lasted very long; created opportunities for investors“
In a highly light vein, the only way to watch the entire clip below is with a stiff libation in one’s hand & a piece of $TMF (or ZROZ) in one’s account.
2. If you gaze to short-term from longer term, …
For that, we go to Max Kettner of HSBC, the tried & true Bullish strategist this year:
- “for the next 2-3 weeks, there is a lot that is now more clear; next payrolls are in 10 days … so next few days in particular, we can see a proper squeeze higher across risk assets spectrum …”
His main point is that the post-April rally has been “surprisingly hated“. Watch & listen to him below:
Who would you normally turn to heap scorn on any bullish prognosis? For us that would be the man nicknamed as “Rosie” despite acting highly “Un-Rosie”, the man named David Rosenberg! Not this time. David Rosenberg was almost effusive about what Fed Chair Powell said. That, in itself, should convince everyone of the radical but correct change in Mr. Powell’s thinking.
Below are some excerpts from what the new Rosie said on CNBC on Friday:
- “by year-end, we are going to be building slack in the labor market that will persist not just for the next year but into 2027; … that was a really important message for me …. this was more than mildly dovish … this was not just to tip his hand for a September rate cut; this was actually a move towards suggesting that we are going to be in for a sequence of rate cuts ahead after September“…
What about inflation you ask? The new Avataar of rosiness (see #2) said about Chair Powell’s comments:
- “… what was really important was that he didn’t dismiss inflation; …. what he said importantly is that we are likely going to build up enough slack that whatever near-term inflation that we get from tariffs is NOT going to feed into wages … “
Warren Pies of 3fourteenresearch.com remains constructive on the year-end but is less enamored of the near term given the positioning & sentiment. We mention this because he has had a good track record in warning investors about jumping in at over-bought junctures.
We, of course, cannot end an article like this without bringing up what Ryan Detrick said;
- Ryan Detrick, CMT@RyanDetrick – Aug 22 – “The wait is the hardest part.” Tom Petty – Looks like a cut is coming in September, which means we had to wait 9 months in between cuts. Long waits can be a good thing though. 5-12 month waits between cuts have seen the S&P 500 higher a year later 10 out of 11 times.
With this focus on labor, is it too early to wish all a very happy “Labor Day”?
Send your feedback to editor.macroviewpoints@gmail.com Or @MacroViewpoints on X.
