In this must-watch clip from out recent Real Conversations, Hedgeye CEO Keith McCullough sits down with former Fed insider and CEO/Chief Strategist of Quill Intelligence Danielle DiMartino Booth to discuss the power shift at the Federal Reserve and the potential outcome for Wall Street.
Below we have transcribed key excerpts from their conversation. You can watch the entire hour-long interview here.
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McCullough: Some people like Stephanie Kelton, don’t even say anything anymore other than using emojis. I’m sure you noticed this tweet she posted right after it became obvious we were going to have the Blue Wave.
So where does she fit on that? I get a lot of questions on this wondering how this all looks.
In fact a lot of questions have to do with what happens when Powell is gone and it might be Lael Brainard with Cecilia Rouse joining Yellen and Kelton?
First of all that’s four women out of four. That’s completely different and there are a lot of possibilities in terms of the tone and what that is relative to what Wall Street would have liked or is expecting. I don’t know!
DiMartino Booth: Keith, I think what you’re missing is that there is a gap to bridge in between such a development in February of 2022. The Fed will change its narrative the minute the markets force that.
They will back down on all this inflation narrative. They’ll back down on everything if the markets correct. We’re talking about 10-15%.
They’ve never not changed their narrative. You could easily have a Federal Reserve and a Treasury in conflict with one another if Wall Street gets hurt. I get it. I know Jeremy Grantham is considered to be a perma-bear, but he’s right that when bubble-ish behavior becomes as in your face and arrogant as it is today, you are a matter of months not years away from whatever the culmination is going to look like.
If that’s the case, then Jay Powell will come to the rescue of Wall Street however he can.
McCullough: I don’t disagree with that at all in terms of the timing. In fact if you look at what we’re saying on Quad projections, the party ends at the end of Q2. And when the party ends you hit Quad 4. Quad 4 is of course when you have the deflation coming back.
That’s when the rate of change starts to slow again. That’s absolutely 100% of the time when the Fed comes in to the rescue.
But to your point, they come in after the sh*t is hitting the fan in the market.
And that is really the problem here. I’m set up for (full disclosure) that the 10-Year Yield is going to 1.8-1.9%. I completely disagree with Gundlach as I have for a while now. Directionally I like my model relative to his. What if that all happens in three months?
Literally we are on the screws, we are going to see these inflation prints, the market is going to have to deal with it, and you have bubbles everywhere.
Bubbles by the way, if they weren’t, I wouldn’t be long them. I think that is another problem people have with their own baggage. If you knew it was a bubble why wouldn’t you be long it? Because “We are just sophisticated in calling it bubbles, I wouldn’t touch such a thing.”
That’s not the way to deal with it. If you’ve seen bubbles before, you’d like to own them on the way up cause you make more money. But I do think that all of this is coming to a head here in the next 3-4 months.
DiMartino Booth: It doesn’t matter what you throw at this market, it’s a melt-up. It just doesn’t work. You can ask any scientist in the world right now give the sh*t show in South Africa, the U.K., and Brazil.
The three COVID variants are here. But it doesn’t matter. Newsline's don’t matter. Economic data doesn’t matter.
We had a 1.4 million Initial Jobless Claims print two weeks in a row. It doesn’t matter. Not when you are melting up.
