A Big Test for Jay Powell

Andy Snyder|November 2, 2022

Today’s the big day. Jay Powell will take the stage at 2:00 this afternoon and tell the world its fate.

Rates will rise. Markets will move. And millions of folks will scratch their heads and ponder what the heck it all means.

We have our thoughts. But first… a tale of sex on the farm.

We got a new ram yesterday. He’s a young fella – just 7 months old. For a sheep… a ram that age will do nicely.

He’s already out in the pasture with the older ewes, doing what we bought him to do. In 147 days, we’ll see the fruits of his labor. We’ll see what kind of ram he is.

By then, the bitter bite of winter will have passed. The grass will be growing. And we’ll have plenty of forage for a few dozen more ruminants.

If he’s a good ram, each of the ewes will have lambs.

If that happens, we’ll keep him around.

If he’s lousy, only a few ewes will give us what we want.

In that case, he’ll go to the butcher.

For the ram, taking it slow and steady would be a wise idea. Lay down with one ewe, build a bit of a relationship and then move on.

If he does his job right, he could be living in a grazing utopia for years.

But, oh no, he won’t take his time.

We saw the shimmer in his eyes… the twitch of his nose… and the curl in his tongue.

There’s no slow and steady in him. By now, he’s likely down by the creek smoking a cigarette, exhausted from a night of frantic work.

Some ranchers would already be hauling him off to the butcher to save on the wintertime hay bill. They want a young man for just a few days of hard work.

But that’s not smart… especially with a good ram.

A good one will take his time. He’ll work hard, take a break and then work hard again. He’ll find the right ewe at the right time and ensure that, come spring, there are lambs all around.

Back to Mr. Powell…

Getting Slaughtered

He’s been busy screwing (up) everything he can.

Rates haven’t moved this fast at any point in modern history.

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The markets, of course, seem convinced the job is done. The seeds have been planted.

Retail investors are so convinced that they poured back into stocks last month, giving us the best October on record.

But as we’ve said so many times in recent weeks… the market likes to hurt as many folks as possible. When the trade gets lopsided (like when the Dow goes up 14% in October), watch out for the turnaround.

It’s like our new ram. He might get to all the ewes in one night. But if he’s out of energy and can’t keep up with the herd… shame on him.

We’ll be left wondering where all the newborn lambs are next spring.

The full effect of surging rates surely hasn’t trickled through all of the economy. The cycle needs to last much longer. At this point, folks are waiting it out.

We’ve seen a lot of it…

We talked to a finance chief over the weekend who just bought a new house. “I bought when rates dipped and am in at 5.5%,” he said. “I’ll just wait a few years and refinance it lower.”

It’s dangerous logic. And it’s all over the place.

It’s going to take pain to slow 9% inflation. We can’t just wait it out and do our buying tomorrow.

Inflation would feed on itself.

That makes today a big test for Mr. Powell.

We’ll see if he’s a big, dumb ram who’s simply looking to get it all done in one night… or if he’s smart enough to know these sorts of things take time.

Either way… this mess isn’t over yet.

Somebody will get slaughtered.