A simple recap.
What I’m watching
For the first week of September we had key labor market indicators including JOLTS, ADP as well as non-farm payroll numbers. JOLTS were lower than expected while ADP was also weaker than expected. However, NFP was much higher than expected, which ran in contrast to the other data points.
Aside from the labor market data, we also had ISM manufacturing and services. The manufacturing index was lower than expected while the services index was higher than expected, but the delta isn’t all that substantial.
There were some flare-ups in the Iran situation as well, with the most prominent being the news on 9/1 that 2 Saudi oil tankers were hit when traversing the Hormuz strait. Last I checked no one has officially claimed responsibility for the attacks. Over the weekend, the US also struck 3 oil tankers associated with Iran. There were deescalating remarks such as Iran saying they are open to talks if the US comes back to the MOU but it’s really hard for people on the outside to know exactly what is going on.
Following the Warsh remarks during the Jackson Hole meeting the week prior, Fed’s Governor Waller came out on Thursday 9/3 with a more dovish stance saying that he will support keeping the rates steady if upcoming price data shows cooling inflation, and that he wants to give “disinflation a chance”. But if the data runs hot he will be inclined to support a hike. This dovish comment sparked a substantial rally on Thursday in equities, gold and short term treasuries.
Obviously, a lot hinges on the CPI and PPI in the coming week, which will be delivered on Friday and Thursday respectively. Also of note is that after the stronger than expected NFP on Friday, Trump tweeted on Truth social that he wants the rates lowered, or else he will impose additional tariffs. Honestly, I’m really curious to see how Warsh responds to this and if he stands up to him or let his and the Fed’s reputation and credibility take a huge hit.
A position or thesis
I maintain my view that long term (at least in the coming 2 years) it is unlikely for the Fed to be able to actually reign in control of inflation, or really for the US to be able to exercise any kind of fiscal austerity. However, in the near term, i.e. in the coming weeks, it is hard to say whether Warsh will stick to it or cave in, or at least it’s hard to say until we see the data next week. Once we see the data and the market perception and then see Fed’s (and Warsh’s) response to it, we will have a much better idea on the trajectory.
I’m maintaining my stance that gold will be good in the long term as a hedge against the entire system. I start to see a higher possibility of more volatility and potentially extreme events. At this junction, we have the combination of the ever-growing US national debt, rising global long term yields, AI capex that are increasingly fueled by debt issuance and all that are hinged on the success of these successes, the weakening of the US hegemony and the USD, as well as the currently US and global politics and geopolitics, including Iran and the growing rift between the political parties and the rich and the poor. Something must give. These problems might have been around for decades and it has always been alright in the end all the times it happened in the past, but there might be a tipping point up ahead.
But again, despite all this, it is hard to short the system from WITHIN the system. This is to say that after an initial bust, equities might come back stronger, at least in nominal terms. So my position is to have a decent size allocated to gold and non-US assets, and hold some structurally safe stocks while keeping a close eye on the speculative ones that I own.
What I got wrong or updated
Nothing major changed this week. I still view we are in a holding pattern ahead of CPI and really ahead of FOMC on 9/16. When that happens we will get a clearer picture.
The Ephemeral Tourist 