I know Option Sensei is supposed to be an options-focused column. However, it’s the underlying movement in assets — particularly equities — that drives options in terms of price and volatility.
Today via Zoom (ZM), the Federal Reserve hosted its annual “Jackson Hole” confab; laying out its case for current policy and future plans. The message continued to be muddled and misguided.
In Wednesday’s article, How to Handle FOMO, I tried making it clear that even with multiple macro events from Covid to Afghanistan grabbing daily headlines, it’s been the Fed’s panic policy continuation, in the form of near-zero interest rates (or negative when measured against inflation) has been the largest and most distorting factor in boosting asset prices.
Now, I’ll clarify my stance on Jerome Powell. To be honest, I initially described him with some salty language that my editors had the good sense to remove. I do think that he’s dead wrong in maintaining an uber-accommodative monetary system of double-barreled massive quantitative easing (QE) and a commitment to keep interest rates near zero.
Today, he was talking out of both sides of his mouth. He admitted there are growing pockets of asset bubbles and inflationary pressures might be less transitory than he originally claimed. However, he quickly followed with his only still “thinking about thinking” about tapering QE. In terms of raising rates, don’t hold your breath, Powell has his sights set on 2023.
When Powell became the Fed’s head in 2018, I was ecstatic; he proposed a plan to systematically normalize rates through the implementation of 25 basis points on a quarterly schedule to get the short-term Fed Funds to around 2% from the then-current 0.25%. He was also going winnow QE to the point of elimination. Powell got three hikes before the market did its Taper Tantrum prior to reversing course.
Admittedly, I no longer have the energy of passion to get too worked up over it. As Al Pacino huffed and puffed in the movie Scent of a Woman, “if I was the man I was 10 years ago I’d take a flamethrower to this place” Hoo Ha.
Let’s just say I think Powell is making a huge policy error.
As far as my editors, I hope we can just sit down and share a cold one.
Have a great weekend!