The Investment Committee's Reaction to the DOJ investigation into Fed Chair Jerome Powell
Speakers
Steve Liesman
— Senior Economics Reporter
Scott
— Host
Eamon Javers
— Senior Washington Correspondent, CNBC
Summary
The investment committee reacts to the DOJ investigation into Fed Chair Jerome Powell. Panelists debate whether markets will keep looking through the probe and other political/geopolitical headlines, while also discussing broadening equity leadership and hedging with precious metals. Eamon Javers reports that former Fed officials and Treasury secretaries are defending Fed independence.
- DOJ opens an investigation into Fed Chair Jerome Powell, prompting a joint defense of Fed independence from former Fed chairs and Treasury secretaries.
- The committee says markets are largely shrugging off the Powell probe and other political/geopolitical headlines.
- Steve Liesman favors the catch-up/broadening trade, pointing to small caps, RSP, steepening yield curve, solid GDP and earnings estimates.
- Steve Liesman also sees global equities looking past geopolitical risks and says Bitcoin's inflation-hedge narrative has failed.
- Joe recommends gold and silver as a paid hedge amid easier monetary policy and low volatility.
- Steve Liesman owns GLD as protection and says disappointed Bitcoin/inflation-hedge buyers are rotating into gold.
- Eamon Javers reports the probe is run out of the D.C. U.S. Attorney's office and involves politically connected allies.
Ideas
Market keeps looking through political headlines
She sees the DOJ investigation into Powell as another political headline that the market is likely to look through, similar to Venezuela and other events. She doubts anything meaningful will come of it, so the market's current direction can continue.
Market optimism is a cautionary sign
The market is treating each geopolitical risk individually and remaining overly optimistic, unwilling to price negative events. If investors start viewing these risks collectively, it could become a problem, so he is cautious on the broad market.
Catch-up broadening trade has legs
The catch-up/broadening trade has legs. Small caps are participating, the yield curve is steepening, GDP could approach 5%, the aggregate consumer is fine, and earnings estimates of 12-14% support broader market participation. RSP, the equal-weight S&P 500 ETF, has already done well in this broadening.
Global equities shrug off geopolitical risks
Global equity markets continue to rise despite real geopolitical and Fed-independence headlines, including Venezuela, the DOJ/Powell probe, and Iran. That shows investors are looking past these events, and strength is broadening beyond tech and beyond the U.S.
Precious metals offer paid hedge
Monetary policy is getting easier, including the president directing Fannie and Freddie to buy $200 billion of mortgage bonds. With low volatility, the way to hedge against a future reckoning is through precious metals: buy gold and silver, which can pay you while you hedge.
Gold benefits as Bitcoin narrative fails
Gold is being bought as protection amid destabilizing events. Also, people who held Bitcoin and other supposed inflation hedges/stores of value have seen that narrative fail and are shifting into gold. He owns GLD.
Bitcoin failed as inflation hedge
Bitcoin and other assets marketed as inflation hedges or stores of value have had that narrative disproven. Investors hanging on to that dream have moved into gold instead, implying Bitcoin is unattractive as a store-of-value hedge.
