Category: Market Action

Lisa Cook is fighting Trump’s attempt to fire her:

Federal Reserve Governor Lisa Cook’s attorney, Abbe Lowell, announced on Tuesday he is filing a lawsuit to challenge President Donald Trump’s attempt to fire her on Monday evening.

“President Trump has no authority to remove Federal Reserve Governor Lisa Cook. His attempt to fire her, based solely on a referral letter, lacks any factual or legal basis. We will be filing a lawsuit challenging this illegal action,” he said in a statement sent to CNN.

Matt Egan at CNN puts Trump in dubious company:

In 1970, President Richard Nixon tapped Arthur Burns, one of his top economic aides, to lead the Fed.

Even though Burns was known as an inflation fighter, historians say Nixon successfully pressured his handpicked Fed chief to juice the economy with low rates to boost his political fortunes.

A review of telephone conversations “clearly reveals that President Nixon pressured Burns, both directly and indirectly…to engage in expansionary monetary policies prior to the 1972 election,” according to a 2006 paper published in the Journal of Economic Perspectives. “Richard Nixon demanded and Arthur Burns supplied an expansionary monetary policy and a growing economy in the run-up to the 1972 election.”
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More recently, Turkish President Tayyip Erdogan fired his country’s central bank chief in 2021 and installed a loyalist. As the Turkish central bank slashed interest rates at Erdogan’s behest, the Turkish lira crashed and inflation blew past 80%.

To my surprise, markets yawned at the impending tussle:

Canada’s main stock index closed up on Tuesday as strong bank earnings and higher gold prices helped boost shares, even as oil prices slid and concerns deepened about the U.S. Federal Reserve’s independence. Wall Street also ended higher.
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The index also benefited from gold prices, which rose to a more than two-week high as investors took refuge in safe-haven yellow metal after fears that U.S. President Donald Trump would infringe on the independence of the Federal Reserve.

Trump fired Fed Governor Lisa Cook over alleged improprieties in obtaining mortgage loans. Spot gold was trading at 3,390.52 per ounce, up 0.71% at 4:13 p.m. ET, which lifted the mining-companies-tracker materials index, with almost 12.5% weight on the TSX, up 1.41% at market close.
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The U.S. two-year Treasury yield, which closely tracks expectations for Fed action, slipped to 3.68% from 3.73% late Monday.

Trump has crossed a bright line:

President Donald Trump on Monday said he has fired Federal Reserve Governor Lisa Cook, according to a letter addressed to her posted on his social media — the first such instance in the central bank’s 111-year history.

The move itself is unprecedented represents a significant escalation of the president’s battle against the Fed, which he has blamed for taking too long to lower interest rates.

Cook has recently come under fire by Trump and members of his administration for allegedly committing mortgage fraud. The Justice Department has said it plans to investigate those allegations first raised by Federal Housing Finance Director Bill Pulte.

The Fed did not immediately respond to CNN’s inquiry.

It’s unclear whether Trump has the legal authority to fire Cook over these allegations. The law specifies that a president may only remove members of the Fed’s board “for cause” – though what merits a for-cause firing has not been explicity defined.

This situation was discussed on August 20 and August 21.

It will be most interesting to see what the Treasury market makes of this tomorrow morning!

Powell gave his anticipated speech at Jackson Hole:

“The balance of risks appears to be shifting,” Mr. Powell said in his final speech as Fed chair at an annual conference hosted by the Reserve Bank of Kansas City in Jackson, Wyo. With borrowing costs weighing on the economy, the labor market softening and inflation risks contained, “the shifting balance of risks may warrant adjusting our policy stance,” said the chair.

Mr. Powell highlighted the recent slowdown in monthly jobs growth, but questioned whether it was a function of a pullback in demand from companies or a reduction in the supply of workers resulting from President Trump’s immigration crackdown. He said that left the labor market in a “curious kind of balance” that warranted caution.

“This unusual situation suggests that downside risks to employment are rising,” he said. “And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.”

Mr. Powell stressed, however, that inflation was still too high even as he sought to push back on concerns that Mr. Trump’s tariffs would lead to a persistent rise in price pressures. Rather he said a “reasonable base case is that the effects will be relatively short lived — a one-time shift in the price level.”

“Of course, ‘one-time’ does not mean ‘all at once.’ It will continue to take time for tariff increases to work their way through supply chains and distribution networks,” he added.

Still, Mr. Powell acknowledged that the Fed was in a “challenging situation” given that the central bank’s two goals of low, stable inflation and a healthy labor market are now in tension with one another. Against this backdrop, he said, the Fed would need to “proceed carefully” with its plans to reduce the degree of restraint it is imposing on the economy.

There were, of course, market effects:

Traders boosted bets on a September rate cut after Powell’s comments, now placing a nearly 90% chance of a reduction, versus about 75% before Powell’s remarks.

The yield on the U.S. 10-year Treasury fell to 4.25% from 4.33% late Thursday. The two-year Treasury yield, which more closely tracks expectations for Fed action, sank to 3.69% from 3.79% in a notable move for the bond market.

Canada’s two-year bond yield fell to 2.69% from 2.73% earlier in the day. The Canadian dollar rose about half a cent, its largest gain since May 23, reflecting losses in the U.S. dollar. It was trading at 72.34 cents US by late afternoon.

The Dow Jones Industrial Average rose 846.24 points, or 1.89%, to 45,631.74, surpassing its most recent record close on December 4, 2024. The S&P 500 gained 96.74 points, or 1.52%, to 6,466.91 and the Nasdaq Composite gained 396.22 points, or 1.88%, to 21,496.54.

The S&P/TSX composite index ended up 277.70 points, or 0.99%, at 28,333.13, surpassing the record closing high it posted on Thursday. For the week, the index was up 1.53%, its third straight weekly gain.

And those rugged free-enterprise Republican types have endorsed state capitalism:

The United States government is making an $8.9 billion investment in Intel common stock, giving the Trump administration a roughly 10% stake in the struggling chipmaker, Intel and the president announced on Friday.

“It is my Great Honor to report that the United States of America now fully owns and controls 10% of INTEL, a Great American Company that has an even more incredible future,” Trump wrote in a Truth Social post on Friday
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The remaining $5.7 billion that Intel had been awarded but not yet granted from the CHIPs and Science Act will fund the equity, along with $3.2 billion that Intel had been promised from the Department of Defense as part of the Secure Enclave program. The government is purchasing 433.3 million shares at a price of $20.47 per share, or a 9.9% stake in the company.
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Trump also said he would do more of these types of deals. His administration has been weighing opportunities to take similar stakes in various US companies in critical industries, two people familiar with the White House discussions on the matter told CNN last week.

I’m with Tulane University professor Walter Isaacson on this one:

In a recent CNBC interview, Tulane University professor Walter Isaacson expressed concern over the precedent. “You’re seeing state capitalism here, where the government is interfering in all sorts of ways in corporate decisions,” he said.

Isaacson cautioned that such interventions often evolve into crony capitalism, where favoured companies benefit from political ties rather than market merit.

“That is a recipe for not only disaster but just sort of a corrupt sense of messiness,” he added.

According to the industry expert, direct equity stakes risk undermining free-market dynamics and investor confidence. Note that INTC shares are still down nearly 9.0% versus its year-to-date high.

So there’s more on the attempt to discredit Lisa Cook of the Fed:

A Justice Department official is set to probe Federal Reserve Governor Lisa Cook after she was accused by a member of President Donald Trump’s administration of committing mortgage fraud, according to a letter sent Thursday to Fed Chair Jerome Powell.

The letter, seen by CNN, was written by Ed Martin, a lawyer at the department who’s tasked with investigating mortgage fraud. Martin said the situation “requires further examination.”

In a letter dated August 15, Federal Housing Finance Agency Director Bill Pulte said that Cook claimed two properties — a home in Michigan and a condo in Atlanta — as her primary home addresses. On Thursday, he said on social media the administration is “probing a 3rd property owned by Cook.”

Pulte, a vocal Trump ally, said in an interview with Bloomberg earlier on Thursday that he looked into Cook, a then-President Joe Biden appointee, based off a tip. He added that his agency has used artificial intelligence software from Palantir to track potential mortgage fraud.

In his letter, Martin also said: “I encourage you to remove Ms. Cook from your Board. Do it today before it is too late!”

“After all, no American thinks it is appropriate that she serve during this time with a cloud hanging over her,” he said.

This keeps getting more mysterious. This was started because of a tip? How did the tipster know? Does Pulte actually have copies of the documents, or what?

And Martin, the Justice Department guy. I really have to question the propriety of him writing “I encourage you to remove Ms. Cook from your Board. Do it today before it is too late!” at any time, let alone before “further examination”. That’s not what Justice Departments do, at least not in civilized countries.

There’s some more commentary on the spectacle of free-enterprise, freedom-loving, double-entry-bookkeeping rugged American types kow-towing to Trump:

The orthodoxy manifested itself in familiar ways. Groups that claimed the mantle of individual liberties would decry new legislation. Talk radio and podcasts would mock unnamed bureaucrats for ham-fisted overreach. And powerful business lobbies were quick to denounce — in press releases and even lawsuits — regulations or taxes they saw as government overreach.

But when faced with President Donald Trump’s efforts to seize control of private enterprise — such as his recent arrangement to have the US pocket a portion of Nvidia’s sales to China, his social media outbursts at individual executives, his moves to take a stake in Intel, and his use of executive powers to cajole banks and law firms he perceives as insufficiently loyal — those same groups have gone quiet.

Take the US Chamber of Commerce, the largest business advocacy group in the country.

Last year, the Chamber sued a federal consumer watchdog group for attempting to cap credit card late fees at $8 a month, claiming the agency “exceeded its statutory authority.” In 2023, it sued the Biden administration over provisions for Medicare price negotiations in the Inflation Reduction Act, claiming the move would consolidate “unfettered and unchecked power” to the department of Health and Human Services.

But under Trump’s second term, the Chamber has had little to say publicly about Trump’s aggressive meddling in the private sector.

Similarly, the Business Roundtable, another DC-based lobbying group that represents hundreds of chief executives, has rarely been shy about denouncing what it sees as presidential overreach in the form of taxes and environmental regulations. This year, though, the group has been largely MIA on the MAGA shift toward a style of capitalism that more closely resembles the autocratic regimes of Russia and China.

Both groups have criticized Trump’s trade war, warning that tariffs hurt American businesses. But neither has spoken out about the president’s more direct assault on free enterprise.

Neither the Chamber of Commerce nor the Business Roundtable responded to multiple requests for comment.

And now Trump’s going after another Fed governor:

President Donald Trump on Wednesday called on a top policymaker at the Federal Reserve to resign, after one of his allies alleged that she committed mortgage fraud.

In a letter dated August 15, Federal Housing Finance Agency director Bill Pulte urged the Justice Department to investigate a pair of mortgages taken out in recent years by Fed Governor Lisa Cook.

On Wednesday, Trump referenced those allegations on his social media platform, writing that “Cook must resign, now!!!”

But Cook pushed back on calls to resign, saying she would not be pushed out of the Fed.
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In the letter, which Pulte posted on social media, he alleged that Cook, a Biden appointee, “falsified bank documents and property records to acquire more favorable loan terms, potentially committing mortgage fraud under the criminal statute.”

Pulte refers to a mortgage Cook took out in June 2021 to purchase a property in Ann Arbor, Michigan, which stipulated it would be her primary home address for at least a year, according to the letter. Cook then took out another mortgage in Georgia two weeks later, Pulte said, also declaring that property as her primary home address. Cook’s Georgia home was later listed as a rental, according to Pulte.

“There can be no mortgage fraud. This came across our desk, and it’s my duty to report it,” Pulte said. “It wouldn’t matter if she were a Republican or a Democrat. It is what it is.”

I’d like to know exactly what is meant by ‘this came across our desk’. How? I mean, these are banking documents; in what manner did they cross Pulte’s desk? Did they become public as a result of Cook’s governorship and were found by a dedicated Republican dirt patrol? Or was the process more … complex?

One way or another, stay tuned! This is getting dirty.

PerpetualDiscounts now yield 5.72%, equivalent to 7.44% interest at the standard conversion factor of 1.3x. Long corporates now yield 5.03%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now 240bp, a sharp narrowing from the 255bp reported August 13.

We are often told that capitalism will eventually collapse under the weight of its own contradictions. So I get highly amused when I see things like rugged Floridian Republicans socializing property insurance, the crony capitalism of export licenses for computer chips and now, the idea of state capitalism with Trump in charge:

Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick confirmed on Tuesday that the US government is considering an extraordinary investment in struggling chipmaker Intel. But they gave different answers about what the Trump administration sought to do with that stake.

Such a deal, if it were to happen, would mark an unusual arrangement that would see the Trump administration use taxpayer money to take a stake in a private American business.
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The reports and Bessent’s comments also come after chipmakers Nvidia and AMD said they would pay 15% from their chip sales in China to the government in exchange for export licenses. If the government does take a stake in Intel, it could also serve as a model for other Trump administration investments, two people familiar with the White House discussions on the matter told CNN last week.

These are indeed interesting times.

Canadian inflation was basically flat in July:

Canada’s annual inflation rate eased to 1.7 per cent in July from 1.9 per cent in the prior month as lower year-on-year gasoline prices kept the consumer price index low, but core measures of inflation stayed sticky. Analysts polled by Reuters had forecast the annual inflation rate at 1.8 per cent and the monthly inflation rate at 0.3 per cent. The CPI increased by 0.3 per cent in July from 0.1 per cent in June on a monthly basis, Statistics Canada said.
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To gauge underlying price pressures, the Bank of Canada keeps a close eye on its preferred core measures of inflation, which did not ease in July, continuing to hover around 3 per cent annually.

However, BMO chief economist Douglas Porter noted that the three-month annualized trend for those measures eased to 2.4 per cent in July.

The money market thought the news was a little dovish:

Money markets are now pricing in odds of a rate cut on Sept. 17 at about 38 per cent, up from 32 per cent prior to the data, according to LSEG data. They are also still pricing in a full quarter point rate cut by the end of this year – but no more. The Bank of Canada has stayed put at 2.75 per cent at its last three rate decision meetings.

Here’s how implied probabilities of future interest rate moves stood in swaps markets moments after the 8:30 a.m. data, according to LSEG data. While the bank moves in quarter-point increments, credit market implied rates fluctuate more fluidly and are constantly changing. Columns to the right are percentage probabilities of future rate moves.

I continue to be fascinated by the impending drying up of US Social Security and there was a decent review on CNN today:

“Today, we celebrate that 90th anniversary of one of the most significant pieces of legislation ever signed into law, the Social Security Act of 1935. And we’re going to make it stronger, bigger and better. … During the campaign, I made a (pledge) to our seniors that I would always protect Social Security, and under this administration, we’re keeping that promise and strengthening Social Security for generations to come,” Trump said.

But in citing what he said were his administration’s successes, Trump made some false and exaggerated or unverifiable claims. Among them:
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Claim: Social Security’s finances are better

In praising the accomplishments of Social Security Commissioner Frank Bisignano, who was standing next to the president for the proclamation signing, Trump said that while the media has reported that the program was going to “go bust” in less than a decade, “Not anymore it’s not.”

But in fact, the program still faces the prospect of not being able to pay 100% of promised benefits by 2034 in the retirement and disability programs if lawmakers don’t act to address the pending shortfall, according to the latest annual report from Social Security’s trustees. By that point, unless changes to the system are made, payroll tax revenue and other income sources will only be able to cover 81% of scheduled benefits.

And with the estimated reduction in tax revenue from Trump’s One Big Beautful Bill Act, the Committee for a Responsible Federal Budget estimates that the insolvency date will now be a year or two earlier.

There are several longstanding reasons for the funding shortfall, including demographics and other spending and tax legislation passed under Republican and Democratic administrations. But, to close that gap, lawmakers (as they’ve known for years) will need to come up with a package of fixes that may include raising more in Social Security taxes, raising the retirement age, changing the formula to reduce the amount of initial benefits a person receives at retirement, and changing how benefits are annually adjusted for cost of living, according to CRFB.

I fail to understand why the Democrats aren’t banging the drum on this at every opportunity.

And the PPI for July came out:

The latest Producer Price Index, which measures the average change in prices paid to producers, jumped 0.9% from June, lifting the annual rate to 3.3%, according to Bureau of Labor Statistics data. PPI serves as a potential bellwether for the prices consumers may see in the months ahead.
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Excluding food and energy, core PPI also shot higher by 0.9%, sending the annual rate to 3.7%, the highest level since March.

PerpetualDiscounts now yield 5.75%, equivalent to 7.48% interest at the standard conversion factor of 1.3x. Long corporates now yield 4.93%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now 255bp, unchanged from that reported August 6.