MacroVoices #407 Jim Bianco: Jay Powell’s “word salad”, FOMC Mood Swings, Interest Rate Outlook, Crypto & More

Episode Summary

Executive Summary: Jim Bianco argued the Fed’s December pivot reflects internal and political pressure more than clean data dependence, and that markets are pricing in too many rate cuts. He sees resilient growth, sticky inflation, and the potential for higher long yields in 2024, with volatility likely to rise across bonds, stocks, gold, and crypto-related assets.

Main Topics: Fed pivot, Powell's 'word salad,' and internal pressure (Priority: 5/5): Bianco argued Powell’s unclear messaging reflects a Fed trying to justify a policy shift it may have already chosen, possibly under pressure from dovish Biden-appointed members who prefer rate cuts and unanimity over a split vote. Peak yields are not behind us (Priority: 5/5): Bianco rejected the idea that the 10-year yield has seen its cycle high, forecasting a move back toward 5.5% as nominal growth stays strong and inflation remains sticky. Resilient economy and sticky inflation (Priority: 5/5): He pointed to strong GDP, low claims, and healthy employment as evidence the economy has not rolled over, arguing this supports persistent inflation rather than a clean return to 2%. Bond market transmission into stocks (Priority: 4/5): The discussion emphasized that equity performance is being driven primarily by falling yields, not earnings alone; if yields reverse higher, equities could stall or rotate rather than sustain the current rally. Yield curve inversion and recession signals (Priority: 4/5): Bianco argued the current inversion is less a recession signal than a market/fed mismatch, and that uninversion will likely occur only when the Fed is panicking and cutting rates aggressively. Bitcoin ETF approval and crypto's purpose (Priority: 3/5): Bianco expected spot Bitcoin ETFs to be approved but warned it could be a sell-the-news event and that ETF wrapper adoption may undermine crypto’s original decentralized, censorship-resistant ethos. Launch of the Bianco Research Total Return Index ETF (Priority: 3/5): He announced WisdomTree’s planned ETF tied to his fixed-income total return index, which tilts across duration, curve, credit, mortgage, volatility, and out-of-index exposures such as TIPS.

Key Arguments: Powell’s press conference sounded incoherent because the Fed was asked to explain a sudden policy reversal that the data did not clearly support. The Fed may be responding to internal political pressure from dovish members rather than from a decisive economic downturn. Markets have priced roughly six 2024 cuts, while the Fed’s own dot plot suggested about three, creating a disconnect that could trigger volatility. The economy remains resilient: GDP has been above trend, unemployment is historically low, and job creation is still strong enough to support spending. Core inflation near 4% and headline inflation near 3% make a near-term return to 2% inflation look optimistic, not certain. Bianco’s 5.5% 10-year yield forecast rests on nominal GDP growth remaining around 5%-6% if real growth and inflation stay firm. Higher rates have not yet broken the broader economy because households, firms, and the wealthy are benefiting from higher interest income while many liabilities are hedged or held by lower-income borrowers. The current yield-curve inversion may persist until the Fed is forced into aggressive cuts; uninversion is more likely to be a slowdown signal than inversion itself. Equities are benefiting mainly from lower yields; if yields rise again, the market could shift from broad rally to sideways/choppy performance. Bitcoin ETF approval is already largely priced in, and regulatory packaging may conflict with crypto’s decentralization narrative. WisdomTree’s ETF tied to Bianco’s index is designed to outperform a passive bond benchmark by actively tilting across fixed-income risk factors. The biggest 2024 risk is not a clean recession call but policy confusion, sudden Fed mood swings, and market overreaction to each shift.

Data Points: S&P 500 March futures: 4749, down 23 bps - Macro scoreboard close of Wednesday, Dec. 20, 2023 U.S. dollar index: 102.40, down 49 bps - Weekly market scoreboard WTI crude oil (Feb.): $74.22, up 645 bps - Weekly market scoreboard and post-game crude discussion RBOB gasoline (Jan.): 220, up 891 bps - Weekly market scoreboard Gold (Feb.): $2047, up 34 bps - Weekly market scoreboard Copper: 390, up 290 bps - Weekly market scoreboard Uranium: $90.00, up 557 bps - Weekly market scoreboard; new year high U.S. 10-year Treasury yield: 3.85%, down 17 bps - Weekly market scoreboard; decisively below 4% Market pricing for 2024 Fed cuts: About 6 cuts - Bianco contrasted market pricing with the Fed’s dot plot Fed dot plot expectation: About 3 cuts - Bianco referenced the FOMC’s own guidance 10-year Treasury high cited: 5.03% - Bianco’s view on whether peak yields are in 30-year Treasury high cited: 5.17% - Historical yield highs discussed in the interview Bianco 2024 10-year yield forecast: 5.5% - Bianco’s long-term outlook based on nominal growth Q3 GDP growth: 5.3% - Evidence of strong recent economic growth Atlanta Fed GDPNow tracking: 2.6% - Bianco cited current tracker estimate for current-quarter growth Initial claims: 202,000 - Cited as near 50-year lows, showing labor-market resilience Monthly payroll growth: 199,000 - Bianco used this to argue labor demand remains strong Core inflation: 4% - Bianco said core inflation remained well above target Headline inflation: 3% - Bianco noted headline inflation still elevated Unemployment below 4%: 22 straight months - Longest stretch in 53 years, supporting labor-market strength Federal debt interest expense: About $1 trillion per year - Up from about $400 billion two years earlier, according to Bianco Berkshire Hathaway cash income example: About $8 billion per year - Bianco used Berkshire’s cash pile to show higher rates can aid cash-rich firms Berkshire Hathaway cash balance example: About $130 billion - Used as an example of rising interest income Top 10% share of financial assets: About 90% - Bianco argued the wealthy benefit disproportionately from higher rates Top 10% share of retirement assets: About 98% - Same distribution argument on asset ownership Mortgage debt held by bottom 50%: 56% - Bianco argued lower-income households bear more of the liability burden SPX implied move for Jan. 19 OPEX: ±120 points - Post-game options/volatility discussion SPX upper implied move: 4820 - Derived from the January 19 monthly options positioning SPX lower implied move: 4580 - Derived from the January 19 monthly options positioning QQQ spot price: 405 - Post-game tech discussion QQQ implied move for Jan. 19 OPEX: ±14 points - Options positioning discussed in post-game VIX: Around 13; projected pop toward 16 - Post-game volatility outlook WTI inventory build: 2.9 million barrels - EIA weekly inventory report Cushing inventory build: 1.7 million barrels - EIA weekly inventory report Gasoline inventory build: 2.7 million barrels - EIA weekly inventory report Distillate inventory build: 1.5 million barrels - EIA weekly inventory report U.S. crude production: 13.3 million barrels/day - All-time record high / prior high revisited

Pivotal Quotes: "the man who has earned international accolades, Jay Powell, for his ability to speak clearly in plain language that everybody can understand ... suddenly can't form a coherent sentence to save his life" — Eric Townsend: Eric introducing the 'word salad' critique of Powell’s FOMC press conference "I think it's still up for debate, and I'm still sticking with my forecast for 24 or 5.5." — Jim Bianco: Bianco defending his view that peak U.S. yields are not yet in "What we're seeing is when that dust settles, we're at a higher level of stickier inflation between 3% and 4%." — Jim Bianco: Bianco explaining why he expects inflation to remain above target

Implications: Listeners should expect a 2024 market driven more by Fed signaling than by conventional data interpretation. If Bianco is right, sticky inflation and stronger growth could push yields back up, challenge equity multiples, and keep volatility elevated across rates, stocks, and gold.