Introduces three developments: repo funding stress (60bps above target), political pressure on Fed (Trump's litmus test), cooling labor market details. Notes gold above $4200, silver past $60, markets adjusting to what comes next.
Jeremy Saferne
James Grant
Fed administers rates like a puppet master; administered rates return little information. Compares current repo stress to Sept 2019 when overnight rate jumped from 2% to 10%, revealing cracks. Fed injected $60B/month then, adding $350B+ over 6 months, calling it 'not QE' but it was prelude to pandemic abandonment of discipline.
Asks if today's repo move is market warning system is running without enough true liquidity again, like 2019.
Jeremy Saferne
James Grant
Yes, that is the message of the markets. A little illiquidity is great because it rations lending and reminds that public credit is in trouble due to immense debt. Fed talks about everything except that supply of securities is greater than demand at current interest rates.
If policymakers cut rates without current inflation data, is decision driven by funding stress or political influence rather than economics?
Jeremy Saferne
James Grant
Political influence and funding stress both play part. Fed has quiet 'fourth mandate' to maintain smooth market functioning, which can take precedence. If inflation is running hotter than stale data shows and Fed cuts, they've really got a problem.
Has Fed's fourth mandate conditioned Wall Street to expect rescue reflexively, preventing genuine price discovery?
Jeremy Saferne
James Grant
Exactly correct. Fed is leading people to think nothing really bad can happen as long as it is in business. Bond market volatility is sedate (MOVE index low) despite money market stress.
Can Fed step back from fourth mandate or is intervention baked into system architecture?
Jeremy Saferne
James Grant
Of course it's possible. Fed should be less with us, not center of financial markets. But interventionists want to control outcomes. This looks increasingly like Argentina before ouster of Peronists - crony capitalism.
Is AI-driven market leadership healthy innovation or symptom of market distorted by cheap money and Fed intervention?
Jeremy Saferne
James Grant
Reminds me of late 1990s internet infrastructure overbuilding. Normal cyclical excess - technology brings enthusiasm becomes overenthusiasm then reckoning. But something else: competition to push money onto data center promoters - liken them to pyramids of ancient Egypt, great money pits.
Are we financing future junk where data centers become stranded assets before debt repaid?
Jeremy Saferne
James Grant
Exactly right. Howard Marks is right. Technology destroys itself through something better; shouldn't be priced as 30-year shelf life product.
Is private credit one liquidity event away from discovering what loans are really worth?
Jeremy Saferne
James Grant
Private credit has ways to forestall revelation (LME - liquidity management exercises). It's cynical and contravenes notion of credit as confidence. Ratings inflated, opacity high, compulsion to lend. We're towards explosive phase of credit cycle.
If private credit has two prices (100 or 0), is this eventually insurance sector crisis?
Jeremy Saferne
James Grant
Yes. Risks private equity/credit present to life insurance policyholders are considerable. Could be epicenter of next major credit crisis. Insurers not capitalized for adversity, only prosperity.
If Japan tightens and yen strengthens, could carry trade unwind trigger global margin call Fed cannot offset?
Jeremy Saferne
James Grant
Yes. Genuine risk of repatriation by Japanese investors who scoured globe for yield. Japanese rates now at respectable levels (10-year ~2%, 30-year ~3.5%).
Is silver's surge broader public vote of no confidence in monetary policy?
Jeremy Saferne
James Grant
Silver is restless metal - volatile, not strictly monetary (also industrial). Has appeal to those believing debasement trade is live, and supply-demand imbalance. Not really on speculative bender but supply-demand bender.