The Iran MOU has been released. If you missed yesterday’s Spider Web Podcast, where General (ret.) Spider Marks, Bret Lowry, and I discuss the peace deal, it is worth listening to. Although we didn’t have the details, I don’t think our conclusion would have changed much (maybe a touch more dubious about the deal than we already were?). Lots left to be negotiated, and there remains a degree of fragility, so let’s see how it plays out.

The Warsh Fed

PRICE STABILITY.

He is taking advantage of the recent strength in jobs and increases in inflation pressures to come out strongly as being “far from a puppet of the President.” That is very good!

He announced five task forces:

• Communications. Goodbye forward guidance? I like this. The forward guidance becomes less helpful as the only market signals are the market guessing the forward guidance of future forward guidance. The less certainty from the Fed, the better. The dot plots are embarrassing to the Fed. They are so bad at predicting the future path of rates that if they were a baseball player, they would not break the Mendoza Line (for those not familiar with that, it isn’t good).
• Balance Sheet. I applaud that they are examining how the Fed trades the balance sheet. Personally, I would argue that both QE and QT should not be done in prescribed amounts every month that are incredibly well telegraphed. We buy too much for too long. This seems to be one noticeable outcome of that behavior. Add in an element of market needs. Does that take us a step closer to yield curve control? Maybe, but why not? It is all heading in that direction and I’d rather the Fed treat its purchases (and sales) more fluidly.
• Data Sources. Jumping up and down for joy on this one!!!! In an era where so much data is available in real time, it is nonsensical how we collect some of the data and then process it. OER may have made sense at one time, but I’d go with Zillow rent (or other real-time metrics). Truflation isn’t perfect, but it’s a useful tool! We should be revamping data collection! I wrote about this a few years ago and will dig out the article when I’m not typing on a flight to JFK. 😊
• Productivity Trends in AI Boom. This needs to be addressed. Are we getting efficient and having massive productivity gains? Are new jobs being created? Are we outsourcing intelligence for the first time, and should we maybe expect different results from that? Outsourcing labor works wonders for prices and stock prices until we find ourselves in dire need of ProSec™. I’d add robotics to the AI analysis as well. We discuss our concerns in Space: The NOW Frontier & the AI Revolution.
• The Fed’s Inflation Framework. Probably important, but I think data sources will cover a lot of this.

Bottom Line

Bringing the Fed into the Data and AI age, while retaining independence (though I suspect more cooperation with the Treasury) is positive.

This should help control the long end of the yield curve.

I’ve been bearish on 10s in particular, but I need to rethink that, given today’s messaging.

Not great for stocks, but not very problematic either.

A Fed working with better, more timely data, is good for everyone.

I was hoping that Spider, Bret, and I would be pleasantly surprised by the MOU, but if anything, it leaves more to be desired than I anticipated or hoped (can Iran charge a toll starting in 60 days? What about missile development?).

Expect stocks to continue to slide, but it’s more a function of too much “good” being priced in, and the combination of the MOU and the Fed is taking away some of that optimism.

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