MacroVoices #418 Jeff Snider: From Waller Speak to Risk, After Risk, After Risk

Episode Summary

Executive Summary: Jeff Snyder argued that Fed Waller’s comments were mostly about balance-sheet mechanics, not imminent QE, while markets overread them as a reverse Operation Twist and bid gold, Bitcoin, and bonds. The discussion framed the bigger macro risk as a slow-burn global downturn: U.S. labor and GDP data are bifurcated, commercial real estate and credit are vulnerable, China remains weak, and Europe is already in recession.

Main Topics: Fed policy, Waller remarks, and market interpretation (Priority: 5/5): Snyder said Waller appeared focused on reconfiguring the Fed’s Treasury maturity profile toward pre-crisis norms, not announcing QE. Markets nonetheless interpreted the remarks as QE-like stimulus or reverse Operation Twist, helping fuel moves in gold, Treasuries, and Bitcoin. U.S. macro bifurcation and recession risk (Priority: 5/5): The U.S. economy shows conflicting signals: headline GDP, payrolls, and unemployment look strong, but GDI, hours worked, claims behavior, and private survey measures suggest a slower economy still drifting toward weakness. Labor market distortions and statistical concerns (Priority: 4/5): Snyder argued payroll gains looked suspiciously strong relative to hours worked and revisions, implying statistical smoothing and underlying labor weakness such as hiring freezes and falling quits. Commercial real estate and banking system risk (Priority: 5/5): The largest U.S. structural risk discussed was commercial real estate exposure in banks, especially multifamily and commercial mortgages, which could convert a mild credit crunch into a sharper loss cycle if refinancing stress worsens. Fiscal deficits and Treasury market resilience (Priority: 4/5): The panel argued that massive Treasury issuance has not triggered bond market revolt; instead, demand for safety and liquidity remains strong. Snyder said deficits do not automatically cause inflation and may reinforce disinflation/slow growth in the current environment. China’s reopening disappointment and credit stress (Priority: 4/5): China’s post-COVID rebound failed to materialize, and authorities are now forced into more stimulus while the banking system appears risk-averse and real-estate stress persists. Europe’s prolonged recession, especially Germany (Priority: 4/5): Europe has been in an extended low-growth or recessionary state, with Germany singled out as deteriorating further and European banks showing credit-tightening behavior similar to the U.S.

Key Arguments: Waller’s comments were about portfolio maturity composition and operational flexibility, not a clear announcement of imminent QE. Markets often misread Fed communication, and the reaction in gold, bonds, and Bitcoin likely reflected over-interpretation plus short covering. The U.S. economy is not cleanly in a no-landing boom; instead it remains bifurcated, with headline statistics masking weaker underlying measures. Payroll strength appears partly statistical, because hours worked and other labor measures do not confirm the same strength. Commercial real estate is the clearest U.S. financial-system vulnerability because banks are heavily exposed and a trillion-dollar build-up in mortgage credit must eventually reprice. A 6% 10-year Treasury yield would be highly damaging for CRE refinancing and could force property liquidation and bank losses. Deficits are not mechanically inflationary in a weak, disinflationary economy; they can coexist with high demand for Treasuries because investors want safety and liquidity. China’s problems are deeper than reopening effects, and its banking system is increasingly tightening credit despite PBOC easing. Europe’s recession is already persistent enough to matter, and banking weakness could prolong or intensify it further.

Data Points: SP 500 March futures: 5,111, up 59 bps week over week - Macro scoreboard as of close Wednesday, March 6, 2024 U.S. dollar index: 103.35, down 54 bps - Weekly macro scoreboard WTI crude oil April contract: $79.13, up 75 bps - Weekly macro scoreboard Gold April contract: $2,158, up 5.68% - Weekly macro scoreboard; all-time new highs Copper: $3.87, up 78 bps - Weekly macro scoreboard U.S. 10-year Treasury yield: 4.10%, down 16 bps - Weekly macro scoreboard; yields moving back toward 4% Uranium: $91.75, down 2.86% - Weekly macro scoreboard; correction continuing EIA crude inventories: +1.4 million barrels - Weekly U.S. oil inventory data Cushing crude inventories: +701,000 barrels - Weekly U.S. oil inventory data Gasoline inventories: -4.4 million barrels - EIA products data Distillate inventories: -4.1 million barrels - EIA products data Net petroleum products: -7.2 million barrels - EIA total product drawdown U.S. crude production: 13.2 million barrels per day - Down 100,000 bpd week over week; near plateau at 13.3 million bpd SPX spot: ~5,100 - Post-game technical levels SPX call wall: 5,200 - Options positioning for March monthly OPEX SPX put wall: 5,040 - Options positioning for March monthly OPEX SPX implied move for March 15 monthly OPEX: ±90 points - Derives upper/lower move targets of 5,190 and 5,010 SPX key support: 5,050 - Post-game technical level SPX breadth: ~60% - Broad market breadth has deteriorated from December’s ~87% VIX: ~15 - Volatility index and intraday range discussion NASDAQ 100 spot: ~437 - Post-game technical levels NASDAQ 100 call wall: 439 - Options positioning NASDAQ 100 put wall: 425 - Options positioning NASDAQ 100 implied move for March 15 monthly OPEX: ±10 points - Derives upper/lower move targets of 447 and 427 EUR/USD / Euro level: ~1.09 - Dollar commentary ahead of ECB decision Gold technical breakout: Above $2,100 - Discussed as confirmation of a long-term cup-and-handle pattern Gold upside target: $2,725 - Projected if breakout holds for weeks Gold near-term dip-buy level: ~$50 pullbacks - Patrick’s technical view Uranium spot / SPUT discount: >15% discount to NAV - SPUT trading below spot/spot proxy value Commercial bank cash holdings: Higher since last summer - Fed H.8 data showing defensive bank behavior U.S. debt issuance: ~$3.4 trillion in new money last year - Fiscal discussion of Treasury supply China volatility period: 2020-2023 range swings - Speaker referenced large economic volatility during and after pandemic period European growth: Negative growth for five consecutive quarters - Europe has been in prolonged recession-like conditions

Pivotal Quotes: "Waller really opened a can of worms here, didn't he?" — Jeff Snyder: Initial reaction to the Fed governor’s remarks and the market’s QE speculation "I don't think Waller said we're doing. We're about ready to do QE. I don't think that's what he was saying at all." — Jeff Snyder: Clarifying that the comments were more about portfolio mechanics than a policy pivot "The market does not forecast rate cuts, it forecasts probabilities." — Jeff Snyder: Explaining why rate expectations can swing without implying a linear forecast "There is no reason to believe it's going to happen." — Jeff Snyder: On bond vigilantes forcing fiscal discipline; his view that markets will not stop deficit spending

Implications: Listeners should treat the Waller/Fed narrative cautiously: stimulus expectations may be overstated, while the real risks are slower growth, CRE stress, and global recessionary spillovers. Defensive positioning may be warranted in credit-sensitive and economically cyclical exposures.