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Why wouldn’t he say the words I need to hear?!

When the bigwig tells the market that he will do an interview on the day before Fed governors are going into the blackout period after a day of torrid selling, the market expects him to speak soothing words.


He, being Federal Reserve Chair Powell, and I, being every trader that lost money yesterday. The words the market needed were that he is closely monitoring the market instability, and the Federal Reserve will be extending the SLR (see today’s market observation) or some form of yield curve control will be implemented if the situation should get worse.

Instead, what the market got was more of the same and as a result, the market reacted with more of the same of recent days i.e. selling of every asset that they have. Why was the market reaction so violent when Powell did not say anything new?

This is the markets’ equivalent of Sherlock Holmes’ case of The Dog That Didn’t Bark in the Night. The interview that Powell did last night was announced on 25 Feb, the day that the US 10-year bond yield spiked 20 basis points intraday and ended the day up 15 basis points.

When the bigwig tells the market that he will do an interview on the day before Fed governors are going into the blackout period (roughly about 2 weeks before the next Fed policy meeting when no Fed official is allowed to speak publicly or grant interviews) after a day of torrid selling, the market expects him to speak soothing words.

And when you build up expectations and turn up to say much of the same, you are going to get a tantrum.

So, what now? The tantrum could continue, but embedded within the words that were pretty much the same were messages that the market ignored as it expressed its collective displeasure.

Rising inflation expectations (which have been driving the panic selling in recent days) is precisely what the Fed is trying to engineer. Will they react to squash it? No.

What then will they do? They will keep rates ultra low until the US economy reaches full employment AND actual inflation prints at 2% (their target) or above.

What will the market do? Long end interest rates will rise and the market will panic (happening now), but the Fed will not react until financial conditions are affected. That means if asset prices fall far enough such that it starts to affect the economy, only then will the Fed react.

I will be sharing more of my thoughts on this and how to navigate this volatility with the TrackRecord Community Members on a call. To listen in, click here to register.


17 March, The Antidote To The Chaos?

If the Supplementary Leverage Ratio (SLR) exemptions are allowed to expire (31st March 2021), the recent rapidly-rising US Treasury Bond (UST) Yields and sloppy UST auctions will likely quickly get much worse. If the SLR exemptions are extended (as we expect they will be — at the Federal Reserve policy meeting on 17 March 2021), it will effectively amount to the US government permanently suspending bank capital requirements with respect to the banks’ holdings of USTs. This allows US banks to buy lots of USTs at increasingly negative real rates and that creates the buyers of the bonds that the US government needs to issue to fund their massive fiscal deficit.

We expect SLR regulations to be extended; this will amount to US banks being pushed further toward being “utilities that finance the US government.” An SLR extension would likely also be USD negative, and therefore likely stock market positive (and Gold and Bitcoin.)

More importantly, the 30% bank loan growth to the US government vs 2.5% total loan growth shows that the US government is continuing to “crowd out” the US private sector, and the US government is increasingly taking over control of the US money supply from the US commercial banking sector. It is hard to overstate how important this is — it is structurally VERY inflationary.


US Non-Farm Payrolls is expected to show that 148K jobs were added in Feb, and a stronger than expected number could renew fears that inflation pressures are on the rise and drive bond yields higher again.


1. Currencies : Keep short USD and long NZD, & CNH. Time to add to NZD longs soon but keep an eye on US bond yields. Caution is warranted for now..

2. Commodities : Silver — Support for Silver is at 24.70–80. The nearer term support is at 25.40–50 has broken and that warrants some position reduction.

Key risks: The spike in US bond yields that lead to a stronger USD is materialising and risk aversion is taking hold. This remains the key risk. .

3. Equities :

Equity Index: Cut long US Tech and China A50 Index Futures on the break of supports. 12600–12650 was the support for Nasdaq and A50 support was at 17950–18000. Move to the sidelines and wait for an opportunity to get involved again.

Single Stocks: The market seems to be panic selling, and that results in great businesses being sold at excellent prices. Some of these stocks will have asymmetric risk vs reward profiles given the way the world is head. Find out what they are at TrackRecord Model Portfolio.

Key risks : Higher US yields is now the driving force in markets.


As of New York Close 4 Mar 2021,


  • In a conference hosted by The Wall Street Journal, the Fed Chair Powell acknowledged that the recent upward adjustment in real rates caught his attention but affirmed that the current policy stance was appropriate. In other words, the Fed will not use its tools right now to intervene in the Treasury bond market, which has been pricing in inflation through higher Treasury yields at the back end of the curve. The 10-yr yield, which was little changed prior to these comments, spiked and settled higher by 7 basis points to 1.54%. Powell added that he would be concerned by a consistent tightening in financial conditions that threatens the achievement of the Fed’s employment and inflation goals. The U.S. Senate voted on Thursday to take up President Joe Biden’s $1.9 trillion coronavirus aid bill, setting up what is likely to be a days-long debate.
  • The Dollar Index rose +0.75%, with the EUR down -0.79% to $1.1967. The Dollar surged to three-month highs after Powell failed to express concern about a recent sell-off in U.S. Treasuries as some traders had expected, resulting in higher bond yields and demand for the USD, a refuge in times of risk aversion.
  • While Fed Chair Powell wasn’t yet concerned, yesterday’s quick move in rates spoiled an early rebound bid in the broad market, taking nearly every S&P 500 sector into the red, each of the major indices below their 50-day moving averages, and the Nasdaq into correction territory (a decline of 10.0% or greater from a recent high). S&P 500 fell -1.3% on Thursday, although it was down as much as -2.5%, as long-term interest rates resumed their recent rise following some comments from Fed Chair Powell. The Nasdaq Composite (-2.1%) and Russell 2000 (-2.8%) dropped more than 2.0% with a max drawdown of -2.56% and -3.60% respectively, while the Dow Jones Industrial Average declined -1.1% with a max drawdown of -0.30% intraday.
  • Oil prices spiked to their highest in over a year as OPEC and its allies agreed to extend most oil output cuts into April (Saudi Arabia surprised markets by pledging to cut its production by an extra 1 million barrels per day), after deciding that the demand recovery from the pandemic remained fragile. U.S. crude rose 4.72% to $64.17 per barrel and Brent was at $67.94, up 5.07% on the day.


Fed’s Powell pledges patience, says easy policy appropriate

Notable Snippet: With vaccines rolling out and the government fiscal taps open “there is good reason to think we will make more progress soon” toward the Fed’s goals of maximum employment and 2% sustained inflation, Powell told a Wall Street Journal forum. “I want to be clear about this,” Powell said in anchoring the Fed’s promise to keep its near zero interest rates and monthly bond buying intact. Even if prices jump as anticipated this spring, “I expect that we will be patient,” and not change monetary policies that need to remain supportive until the economy is “very far along the road to recovery,” Powell said. “Our current policy stance is appropriate,” he said.

THEMATIC CONTEXT:US “true interest expense” (Gross Treasury spending + the Pay-As-You-Go portions of US Entitlements, which is just the “interest expense” on Social Security & Medicare obligations) is ~110% of tax receipts. 1. The Fed will have to print more money to pay the US government’s “true interest expense”, or; 2. The US government will have to default on either Entitlement spending, USTs, or both (i.e., the US government would have to greatly reduce monthly Social Security/Medicare/UST interest payments.) Most people do not realize yet exactly how trapped the Fed actually is. As more investors realize this, we expect Bitcoin to continue melting up, gold prices to begin matching what appears to be a melt-up in physical gold demand, and equity prices to respond well. We also suspect the USD will begin to break down.” — 26th Feb 2020

U.S. Senate votes to begin debate on Biden COVID-19 relief bill

Notable Snippet: The U.S. Senate voted on Thursday to take up President Joe Biden’s $1.9 trillion coronavirus aid bill, setting up what is likely to be a contentious, days-long debate over the merits of the sweeping package. The party-line vote of 51–50, with Democratic Vice President Kamala Harris breaking the tie, illustrated that Democrats who narrowly control the chamber can expect little, if any, Republican support.

THEMATIC CONTEXT: “Stronger data coupled with large fiscal policy is stoking inflation fears and putting upwards pressure on US rates which is inadvertently causing the weakness we are experiencing across most asset classes except for the Dollar. Faster and wider vaccine inoculation will exacerbate this phenomena and we should be looking to central banks to calm the markets if it gets worse . Once monetary policy measures are reassured to remain accommodative, we expect asset prices to rebound strongly and resume its uptrend.” — 26th Feb 2021

Global semiconductor shortage spurs run on vintage chipmaking tools

Notable Snippet: Toolmakers such as Applied Materials Inc and Lam Research Corp, meanwhile, are building booming businesses by refurbishing or recreating some of their greatest hits from the 1990s and earlier.

THEMATIC CONTEXT: “”Chip suppliers cannot keep up as software eats the world. This is a key theme going forward and some chip companies have the weight and influence of “Big Oil” companies like Exxon Mobil during the era of peak oil..” — 10th Feb 2021

COMMENTS/IMPACT: We will take advantage of the dips in semiconductor companies to strategically average in more positions. Which are the semiconductor chip companies poised to benefit dramatically in the months ahead? Find out by joining our community membership where you will have access to our FULL MODEL EQUITY PORTFOLIO.




Phan Vee Leung
CIO & Founder, TrackRecord

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