One of our favorite Federal Reserve Presidents Dallas’s own Robert Kaplan had another Round Table discussion the most recent Monday night….
Those with great memories may recall my fiasco when listening to his Round Table discussions and accidentally raising my hand for a live question…. good news, avoided that this time! haha
Elephant in the Room – Inflation or Not?
While leading with stats and updates, the review order has been changed due to the very end of the discussion and importance…
Recalling from the Mauldin SIC conference of the last two weeks and and once again here we are…. Elephant topic for Kaplan – Inflation or Not?
(Have you ever been on a call or virtual visit like this and wondered who else is on? – Am I wasting my time here? Or is this a good use of the late evening? – See callers below for answer!)
Live Callers
After about four or five live callers, the moderator announce, “Our next caller is Byron Wien!” – WHAT!
Wien is an 88 year old veteran of the Capital Markets and currently Vice Chair of Blackstone the largest money manager in the US!
What is he doing listening to a Dallas Reserve President at this time of the night – he is one hour later!
In a no nonsense, direct question, Wien asks or more insists “There is inflation and it is coming faster than officials think! What are you guys going to do?”
Kaplan answers directly that he thinks tapering monthly purchases along with increasing of rates should come “Sooner Than Later!”
This statement was repeated more than any other statement and even at one juncture, Kaplan stated “I said this in March and have seen nothing to change my view!” Sooner Rather than Later!
Kaplan goes on to say ” It is better to let off the accelerator and coast and possibly tap the brakes rather than staying on the accelerator and having to jam the brakes quickly!” We Agree!
Last up from the live call ins :
Robert Sakowitz – Concerns about shipping and port trouble- his personal example of $2600 pod now costing him $8000- (Has to be passed on somewhere? right?)
Based on our research and his question, most likely a multi generational retail magnate!
Both calls were concerning inflation, with several others concerned the FED has stayed to long and their mandate has been met!
Interesting Stats from Kaplan
2 million worker age 55 and over retired since Covid, dropping a valuable portion of the workforce
1.5 million women left workforce to care for children- Wow !
Texas and the surrounding Dallas Fed Area High School Superintendents on average graduate 85% of seniors and now only 60% – creating a shortage of skilled workers –
Taper and Policy – How can FED withdraw without market disruption? SLOOOOWLY
Learned from 07-09 – Telegraph in advance and give market time to absorb
What signals will use for taper – FOMC in Dec of 2020 agree that substantial further progress (Kaplan believes this statement is key and is very open to be used and interpreted many ways)
Input supply demand imbalances – metals, food, wages, PCE of April – June – elevated levels – uncertain of how long will persist
Believe inflation run at 2% and anchored there-
11 million barrels of Oil last year, thinks can only to to 11.25 million per day- fossil fuel here for decades longer, maybe not at the same level as prior but will not go away
Great Final Question from the Moderator
What Keeps Me Up at Night? (Recall same exact question of Buffet at annual meeting and the EXACT same answer)
“No textbook for this recovery, this is unlike any other recovery we have ever had- no prior example – We must manage the risk be nimble if possible !”
There you have it… Local Dallas Fed President echoing a lot of things we have been hearing, spoken of and discussed here!
Good News – Time will Tell and it will not be a long time (quarters, not decades)
Have a Great “Kaplan Update” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
jkfinancialinc
street-cents
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Federal Reserve Detailed Analysis from Last Weeks Announcement … A Very Stern Jerome Powell
As mentioned in our Preview Post last week, we have been watching the FOMC as their posture is due to change with regards to the stimulus put in motion early last year….
Jerome Powell Gets Tough
Recall as the economy was shut down last year the FOMC chaired by Jerome Powell and its members moved interest rates on the short end of the curve to zero and commenced a $120 billion per month purchase of treasuries and mortgage back securities. Both of these moves were to help stimulate the economy and to stabilize the capital markets.
Meeting their goal of stabilization and a much-improved economy the FOMC are ready to shift policies and unless any major economic or other disruption occurs Powell made it very clear that he expects policymakers to begin decreasing the $120 billion per month purchases, and if all goes well to have completely stopped monthly purchases by mid-2022.
As mentioned in some of our prior posts this message has been floated by multiple fed presidents and Capital Markets seem to be taking this news in stride, much to participants and reserve members’ pleasure.
Much of the mainstream media seemed to report that there was no major change in policy or tone to which we disagree. In listening to Powell especially in his interviews after the pre-plan reading of notes, he seemed much firmer and resolved to stop the monthly purchases and the tone in his voice in our minds, let us know if this would occur in the very near future.
As has been mentioned before many of our fellow professional investors have long desired this happened many months ago, but no matter, it appears that it is about to occur slowly and diligently, and capital markets are accepting.
On another totally different and non-market related and non-economic related topic several federal reserve members had transactions over the past year that were not optically good for the federal reserve. One of the members is our very own favorite Robert Kaplan who had multiple large transactions in securities that the federal reserve was involved.
While we will voice no opinion on this … Jerome Powell was very stern surprisingly, and in our mind so stern that it could be an occupational loss for some of these members. It will be interesting to see what comes out of this, but this is not the end of it and once again Powell was very angry and forceful on this point.
Bottom line we would expect a taper, slow lane of monthly purchases to commence shortly and will be watching interest rates which have already made some moves as well as capital market participation.
Have a Great “About to Taper” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
jkfinancialinc
street-cents
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Posted in Economy, FOMC, Interest Rates, Investing/Financial Planning, Market Comments
Tagged Asset Purchase, FOMC, Interest Rates, Jerome Powell, Robert Kaplan, Taper