Report: The Fed is About to Lose Control

We try to find metaphors to describe experiences or entities that are difficult to understand. The FED remains largely opaque to most Americans. This is no accident. It accomplishes this by using financial jargon very few are familiar with. And it refuses to reveal even to Congress precisely what it is doing.

This gives the appearance of a powerful organization run by incredibly brilliant people who have accurate models of the way the financial world works and the power to make things right. Instead, the correct metaphor is that of the Wizard of Oz. Much of it is all for show.

Or as famed investor Jim Rogers succinctly puts it, the FED is “clueless.”

You cannot distort the facts forever. Even the seemingly mighty Soviet Union fell, with its weaknesses on display to all.

In a striking interview with Goldman’s Allison Nathan, legendary trader Paul Tudor Jones argues that US inflation is set to accelerate sharply, making bonds a very poor investment, and that the Fed must act swiftly to tackle financial bubbles created by prolonged monetary easing.

Joining such luminaries as Bill Gross and Ray Dalio, who have both claimed the bull market in bonds is over, PTJ joins the choir and warns that “markets disciplined Greece for its budget transgressions; it’s just a matter of time before they discipline us” and as a result he sees the 10-year yields rising to 3.75 percent by year-end as a “conservative” target amid the now traditional and widely discussed bogeymen: supply outweighing demand, economic momentum outpacing the monetary policy response, and “glaring” bond valuations. Oh, and central banks ending the party, of course:

Beginning next September, when the ECB concludes its asset purchases, the aggregate balance sheet of the main central banks will start contracting after nearly a decade of expansion. That will be a major data break, making it a horrible time to own bonds.

The FED will fail. The question is when. The results will include a repudiation of the dollar, and dislocations in our financial markets like no one living has ever seen. And not one person in 100 will know the real reason.

But the most notable part of the interview, and where PTJ’s most apocalyptic sentiment shines through, is his description of where he sees Fed Chair Powell right now: as General Custer before the Battle of Little Big Horn, a battle which – at least in the history books – was lost.Let me describe to you where I think Jerome Powell is right now as he takes the reins at the Fed. I would liken Powell to General George Custer before the Battle of the Little Bighorn, looking down at an array of menacing warriors. On the left side of the battlefield are the Stocks—the S&P 500s, the Russells, and the NASDAQs—which have grown, relative to the economy, to their largest point not just in US history, but in world history. They have generally been held at bay and well-behaved, but they are just spoiling to show their true color: two-way volatility. They gave you a taste of that in early February. Look to the middle and there waits the army of Corporate Credit, which is also larger than ever relative to the economy, as ultra-low rates have encouraged it to gain in size, stature, and strength. This army is a little more docile right now, but we know its history, and it can be deadly when stressed. And then on the right are the Foreign Currency Fighters, along with the Crypto Tribe, an alternative store of value that only exists because of the games central banks are playing; the opportunity cost of Crypto is so low, why not own some? The Foreign Currency Fighters have strengthened by 10% over the past year. Compounding the problem, they have a powerful, ascending leader, the renminbi, to challenge the US dollar’s hegemony as the reserve currency. All of these forces have been drawn to the battlefield because of our policy experiment with sustained negative real rates.

So Powell looks behind him to retreat. But standing there is none other than Inflation Nation, led by the fiercest warmongers of them all: the Commodities. He might take comfort that he is not alone on the battlefield. But then he looks over at the Washington, DC, fiscal battalion and realizes they are drunk on 5% deficit beer. That’s what Powell is facing, whether he recognizes it or not. And how he navigates this is going to be fascinating to watch.

Check out the two videos below, and you’ll be far ahead of your neighbor who has specialized in memorizing sports statistics while trusting the government and the institution managing his finances to get it right.

Financial bears have caught a lot of flack. Some of it is deserved, especially when they offer specific dates when they believe the crisis will begin. They don’t know that for sure, partly because many of the forces manipulating the markets operate in an atmosphere of almost total opacity.

But the cracks are there. And the wise person is the one who prepares for what must come. Governments and the powerful financial institutions they serve cannot keep things going forever. And don’t forget that the elite financial institutions have inside information on what is coming. Hence, they can quietly get themselves on the right side of the trade so they make billions when it all goes wrong for everyone else.

Take what you heard here as the beginning of your education if you are not already familiar with this material.’

These men might not get it all exactly right. But no nation has ever achieved or maintained greatness by accumulating unprecedented levels of debt and debasing its currency.

When, not if, is the question.

Source: ZeroHedge