Weekend Reading: An Open Letter To The Fed (And Investors… And The American Public)

09/10/21 12:49PM EDT

Editor's NoteBelow is the introduction to Sunday's edition of Hedgeye's "Weekend Reading," in which we discuss the news of Fed Presidents Robert Kaplan and Eric Rosengren's day trading activities.

In addition to the section below, each Weekend Reading includes several investing insights, on the house, to help investors risk manage the market.

Dear Reader,

Our subscribers are no stranger to our condemnation of the Federal Reserve, whether it be their incompetence, lack of forecasting prowess, blindness to economic reality – we could go on and on. It’s easy to poke jokes at their expense. In this edition of Weekend Reading, we are inclined to strike a more serious tone.

Since the market’s Covid-induced lows of March 2020, the Fed has incessantly pumped asset prices sky high while misleading Americans into believing inflation is ‘transitory’, or that it’s “not too bad if you back out groceries, gas, cars, and everything else you need to survive.”

If that weren’t bad enough, we learned this week that two Fed Presidents entered the investing fray during the height of COVID and just as millions of Americans suddenly lost their jobs. Financial disclosures exposed Robert Kaplan and Eric Rosengren (of the Dallas and Boston Fed, respectively) for day trading as their unprecedented monetary stimulus buoyed market highs.

Actually, “day trading” doesn’t effectively convey the magnitude of their financial avarice: Dallas Fed President Robert Kaplan bought and sold S&P futures valued in excess of $1 million. He has 27 holdings exceeding $1 million each. Kaplan was previously Vice Chairman of Goldman Sachs; now he can turn a profit off his own policymaking.

Though Nancy Pelosi might beg to differ, the material and non-public nature of the market-moving information (and decision-making power) a Fed Head is privy to is unrivaled. A Fed President betting on S&P futures is akin to putting it all on black after rigging the roulette table. You’d be barred from Vegas for such behavior. Meanwhile, when Kaplan’s Fed tenure is done the “poor guy” will likely have to settle for collecting millions of dollars in speaking fees and a cushy advisory role for private equity.  

Following (strong) backlash – both Kaplan and Rosengren will sell all their active holdings by the end of September. Conveniently, this comes just as the S&P is making all-time highs and the Fed is about to taper back the juice.

Weekend Reading: An Open Letter To The Fed (And Investors… And The American Public) - fedwr9.10

This is unscrupulous and morally bankrupt behavior of the highest order. These policymakers are tasked with maintaining employment and price stability, mandates of the utmost importance to our country and society. In other words, their actions are complete and utter bullsh*t.

So as to not fulminate too much over the mire of old men, we’d like to return to our mission, giving you actionable investment ideas and information. To make sense (and money) of the Fed’s interminable malfeasance, we recently hosted our Fed Policy Mistake? Real Conversation series on HedgeyeTV. Hedgeye CEO Keith McCullough was joined by three premier macro strategists:

Oftentimes, we are left to wonder how our policymakers amass fortunes whilst "serving in the interest of the American people". Occasionally, a bit of light is shed unto how these so-called "technocrats" become rich while "ordinary" people suffer.

You have every right to react with anger and ire at the misconduct of America’s (unelected) officials. However, we’re also here to remind you to remain vigilant in blockading these emotions from your investing process. Carry on, business as usual, focusing only on the data.

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