YouSaid · the spoken record

Joseph Wang

lines on the record: 111
first: 2022-01-14
most recent: 2022-01-14
sittings or episodes: 1
sources: podcast

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“So the way that the Fed does things is that it absolutely does not want to surprise the markets. In the past, maybe Greenspan would have done stuff like that, but the modern Fed doesn't do that. It's kind of afraid of volatility. So what happens is that before they do anything, they go out and they talk it up. They try to sell the markets what they're going to do. They're not going to say, hey guys, I'm going to hike rates in March and then June and so forth. So you price accordingly. But they hint it. And the market understands that. And so you see that repricing going through into the, let's say the front end of the curve.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Close to full employment. Now that fundamentally changes everything because on the one hand you have high inflation, on the other hand you have full employment. That means everything is go for a rate hike and that's why.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Labor force than pre COVID. So that's where the dilemma comes in. You have high inflation, but you also have, quote from the Feds point of view, you're not at full employment. So that's really why they weren't raising rates so far. But the revolution comes as the Fed is beginning to see that, you know what? So maybe we have 3 million fewer people in labor force compared to pre-COVID. But that's one indicator, but are under other indicators seem to suggest a very, very strong labor market. I can say from my personal experience, just walking through the city, there's a lot of people, there's a lot of stores with help wanted signs. Wages are going higher. And so there could be dynamics in the labor market that have changed since COVID, such that we are actually much closer to full employment than the Fed thinks. And if you listen to JPAL's testimony yesterday, he basically said we are at our”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Really depends on a lot of things. So I'm hesitant about saying that today, the reason being that people aren't really companies aren't really cash constrained. They have enormous amounts of cash in their bank accounts. And, you know, they can raise cheap debt really easily. So I'm kind of skeptical as to whether or not raising interest rates has that much of effect on their investment decisions or on the purchasing decisions of consumers, right? So even if, let's say, they raise interest rates a bit, okay, maybe I park some money at the Fed rather than go buy something, but I don't know if, let's say, 1%, 2%, 3% at all matters that much. But let's say in theory that it does. Okay, let's say it does as the Fed thinks, then you're destroying, you're raising unemployment. That's not good because at this time right now, you have about 3 million people fewer in the”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I just can go through the logic that I learned in my textbook. It's that. The overnight rate that the Fed sets is the risk free rate. So if the risk free rate is low, you get nothing by taking risk-free. So you're going to take risk. But if the risk-free rate is higher, you're saying, hey, 2%, I was going to lend money to this company to bill a factory. But now that I get 2%, I'm not. At 0%, I would have loan to the factory because there's opportunity cost and 0% is nothing. But at 2%, I'm parking my money with a Fed. So that's the theory, Joseph. What about in actual practice? Does raising rates destroy demand?”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Well, according to their textbook theory, you would just slow down investment and so forth. Let's say you were going to build a factory. Now rates are higher. Maybe you won't do that. I don't really know if that's how it works, but that's how they view it.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Way that, and of course, there are some supply constraints that say chip shortage and so forth. So, the way that the Fed would have to do to stop this inflation, it would be by destroying demand in a way. It's basically destroying jobs, reducing output, so forth.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Rather than saying, why is the Fed so hawkish, I would actually frame it as why was the Fed so dovish when inflation is, as you mentioned? It's like exploding higher, right? So they have, you know, let's say a 2% inflation target. And inflation is like 6 7%. So why are rates at zero? It doesn't make any sense. And the reason they've been so dovish so far, though, until, let's say, a few weeks ago, is that they have two mandates. One, it's inflation. The other is also full employment. And at times, these two goals are in conflict. So let's say right now we have inflation because of a huge, huge demand shock, right? the federal government printed a whole bunch of money, spent it, give it to people. And so that's creating enormous demand.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“And if the Fed can control the overnight rate really well though, it can kind of extend that control, let's say throughout the two to five year, by telling you how it's going to keep the overnight rate for the coming years. So for example, if you are trying to price a two-year or a three-year, right? So how would you price that? Well, your opportunity cost, of course, would be whether or not you would roll your investment overnight in the Fed every day for two years. So you can kind of think about that as the expected path of policy. Now, over the past month, there's been a very hawker shift in the Fed into what their projected path of policy is. And that's leading to a lot of the repricing in the front end of the curve. In order to think about this, I would think about, say, you know,”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so I think you set it up perfectly there. So when you think about rates, you can think about the front end or front to belly, let's say, up to five years. That's largely controlled by the Fed. And then you can think about the longer end, say 10, 20, 30, that's a lot more to do with the market. Now these two markets, they behave, well, there's some differences in how they behave. From the front end to the belly, that's really all about what the Fed would do. And the mechanics of how this happens is that so the Fed has very strong control over the overnight rate, right? So the Fed has this facility. It's called the Reverse Repo Facility. And what that does is that it offers a lot of market participants the opportunity to lend to the Fed at an overnight rate set by the Fed. So it's basically a risk-free investment. Today it's five basis points, right? Fed has a lot of control over the overnight risk.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT
“It only knows one Well, we work for Paul Walker, maybe it'll work for me. So we'll hide crates. When the Fed raises rates, what they're mechanically doing is that they're imposing losses on your portfolio on parts of your portfolio. I don't think you can just make just a blanket statement as to where the power put is, except that it is low, lower, much lower than it is today.”
2022-01-14 · Forward Guidance · The Powell Put Won't Save Stocks | Joseph Wang · IDENTIFIED FROM THE TRANSCRIPT