Powell Takes His Shirt Off

Is it the moment we've all been waiting for?

Jerome Powell has never been so dovish as he was today at Jackson Hole. At various points today, the market wasn’t sure if that mattered.

Turns out it does.

Bond yields fell steeply today after his speech.

Can you spot on the chart where Powell ripped his shirt off?

Fed Whisperer Nick Timiraos put it best.

What Happened to the Hawk?

I wrote this week that Powell had gained a reputation for being a hawk but that the reputation wasn’t deserved. I said he had been forced into hawkishness by circumstance but said the Fed was “structurally dovish.”

I don’t think that call could have played out better. You can read that post below.

Powell declared victory on inflation today, more or less. He explained why inflation had happened and what the Fed had done to bring it back down.

He, mercifully, stopped short of flying a “mission accomplished” banner but it was a close call.

Well, if Powell is metaphorically flying a mission-accomplished banner, so should we. Let’s look at some of the calls I’ve made in this newsletter.

In my post Threading the Needle I closed with “I think the ingredients are right for a violent and sustained rally.”

That post came out on August 13th. How’d that call do?

It would have been hard to buy something that didn’t proceed to have a violent and sustained rally. Not to mention the fact that in the days before that and all through the crash, I’d urged cautious optimism.

Then, on August 18th I wrote a post called “Did you buy the dip, Anon?”

In that piece, I explicitly called out crypto as being ripe for a rally, pointing to rising global liquidity and a local sentiment bottom.

How did that call do?

Now, listen. I’m not a professional, and none of this is financial advice. But these pieces were additional data points you could have read and used to make your own trades. You would have done well if you had agreed with me and gotten the information on time.

I just hope you guys are making the most of these insights while being intelligent and responsible.

Where Do We Go Next?

Stanley Druckenmiller is one of my trading heroes. I love his style and his approach to trading.

Druck talks about “fat pitches” in the context of trading. In these situations, you have a great risk-reward on taking a big swing. They’re the easy plays. He’s a big advocate of waiting for the fat pitch and then swinging BIG rather than having a lot of small bets sprinkled around.

I agree with him.

The fat pitches for August are probably done. The Yen Tantrum is likely behind us, so the relatively straightforward “buy the dip” is gone. With Powell pivoting, the focus has officially moved away from inflation to the question of “how bad will the slowdown get?”

Right now, I don’t have much to add to that discourse. I’ve argued for weeks that the economy is stronger than the market thinks. Well, the market has caught up to me.

The major indexes are close to their ATHs.

VIX is back in the 15-handle.

There’s no fat pitch right now. So what do we do when there’s no fat pitch?

Stay cautiously long. Go outside. Touch grass. Study.

And subscribe to my newsletter to make sure you’re in the know when a fat pitch presents itself.

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Disclaimer: The information provided here is for general informational purposes only. It is not intended as financial advice. I am not a financial advisor, nor am I qualified to provide financial guidance. Please consult with a professional financial advisor before making any investment decisions. This content is shared from my personal perspective and experience only, and should not be considered professional financial investment advice. Make your own informed decisions and do not rely solely on the information presented here.