MacroVoices #418 Jeff Snider: From Waller Speak to Risk, After Risk, After Risk
Jeff Snyder analyzes Fed Commissioner Waller's comments about portfolio rebalancing that markets interpreted as QE signals, driving rallies in gold and Bitcoin despite rate cut expectations declining. He details multiple macro risks including U.S. commercial real estate exposure, unsustainable government spending, China's failed reopening, and Europe's prolonged recession.
Summary
Jeff Snider discusses Fed Commissioner Waller's recent speech about rebalancing the Fed's portfolio maturity back to pre-crisis levels, which markets interpreted as a signal for future quantitative easing despite Waller likely only addressing mechanical portfolio issues. This interpretation drove significant rallies in gold, Bitcoin, and treasuries even as rate cut expectations diminished. Snider argues the market reaction may be overblown but acknowledges the correlation with asset price movements.
The conversation extensively covers U.S. economic risks, starting with conflicting data signals where mainstream indicators like GDP and payrolls look strong while underlying metrics like GDI, hours worked, and hiring freezes suggest recession-like conditions. Snider highlights the massive commercial real estate bubble, with banks adding $1 trillion in CRE debt in just six quarters under poor assumptions about fundamentals. This creates significant risks of losses and potential fire sales that could trigger broader credit crunches.
Regarding fiscal policy, Snider argues that despite record peacetime deficits, bond vigilantes won't constrain government spending because economic weakness creates demand for safe assets like treasuries. He contends this enables continued reckless spending that makes the economy less productive over time, contradicting inflation fears but creating long-term economic drag.
On international risks, China's expected post-COVID reopening boom never materialized, revealing deeper structural problems that have prompted increasingly desperate stimulus measures. Chinese banks are becoming risk-averse despite government intervention. Europe faces a prolonged recession spanning five quarters with particular weakness in Germany, while European banks show similar credit contraction patterns as their U.S. counterparts, raising risks of further economic deterioration.
About this episode
MacroVoices Erik Townsend & Patrick Ceresna welcome back Jeff Snider. Erik & Jeff take a deep dive into the macro risks in all the major markets, what the Fed’s Waller REALLY said last Friday & whether it could mean another round of QE is around the corner. https://bit.ly/49DITM0 ⚫ Follow Jeff Snider on X: https://www.twitter.com/jeffsnider_EDU ⚫ Visit EuroDollar University: https://www.eurodollar.university/ 🔻Download Big Picture Trading Chartbook: 📈📉: https://bit.ly/3wLe4Xn ✅Sign up for a FREE 14-day trial at Big Picture Trading: https://bit.ly/46Ul2FD 🔴 Subscribe to Patrick’s Youtube Channel: https://www.youtube.com/@Patrick_Ceresna 🔴 Subscribe to Erik's Substack: https://eriktownsend.substack.com/ 🔴 Check out Energy Transition Crisis on YouTube: https://www.youtube.com/@EnergyTransitionCrisis1 🔴 Check out Nick's YouTube channel: https://www.youtube.com/c/Optionfinity ✅ Join OptionFinity discord: https://discord.gg/Rvnsv6Y 🔴 Subscribe to Nick’s Medium: https://medium.com/@ngalarnyk Please visit our website https://www.macrovoices.com to register your free account to gain access to supporting materials
Key Insights
- Waller's comments about Fed portfolio rebalancing were likely mechanical discussions but markets interpreted them as QE signals, driving rallies in gold and Bitcoin
- U.S. economic data shows stark bifurcation with headline numbers like GDP looking strong while underlying metrics like GDI and hours worked suggest recession-like conditions
- Banks added approximately $1 trillion in commercial real estate debt over six quarters based on poor fundamental assumptions, creating significant loss exposure
- The payroll reports for December and January looked suspiciously strong given benchmark revisions and contradictory hours worked data, suggesting statistical smoothing issues
- Despite record peacetime deficits, bond markets continue absorbing treasury supply because economic weakness creates demand for safe assets, enabling continued reckless government spending
- Government deficit spending during weak economic periods actually contributes to disinflation rather than inflation because it makes the economy less productive and efficient over time
- China's post-COVID reopening failed to produce expected economic recovery, revealing deeper structural problems that predate the pandemic
- Chinese authorities are increasingly panicking about economic conditions, with more stimulus measures indicating worse underlying conditions
- Europe has experienced five consecutive quarters of negative or minimal growth, representing a prolonged recession despite not meeting technical definitions
- German economy shows particularly concerning slow grinding decline rather than sharp drops, making the situation worse due to time duration
- Banking systems globally are exhibiting similar risk-averse behavior and credit contraction patterns, from the U.S. to China to Europe
- The solution to fiscal irresponsibility requires voter education and political action rather than market mechanisms, as markets have proven unable to constrain government spending
Topics
Transcript
This is Macro Voices, the free weekly financial podcast targeting professional finance, high net worth individuals, family offices, and other sophisticated investors. Macro Voices is all about the brightest minds in the world of finance and macroeconomics telling it like it is, bullish or bearish, no holds barred. Now, here are your hosts, Eric Townsend and Patrick Ceresna. Macro Voices Episode 418 was produced on March 7th, 2024. I'm Eric Townsend. Eurodollar University founder Jeff Snyder returns as this week's feature interview guest. We'll discuss what the Fed's Waller really said last Friday, whether it really means another round of quantitative easing is just around the corner as markets are already celebrating, and then... Then dive into one of Jeff's…
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