Why the Fed Risks Losing Control of the Bond Market | Andy Constan

Hidden Forces

Demetri Kofinas

Government, Business

4.8 • 1.6K Ratings

🗓️ 14 November 2024

⏱️ 46 minutes

🔗️ Recording | iTunes | RSS

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Summary

In Episode 389 of Hidden Forces, Demetri Kofinas speaks with Andy Constan, the founder and proprietor of Damped Spring Advisors about why he believes the Federal Reserve is at risk of losing the long-end of the bond market, which would lead to a reacceleration of inflation and a hard landing for the economy.

Andy and Demetri spend the first hour discussing the subject of a recent letter he published in which he warns that the Federal Reserve, by continuing to lower interest rates and ease monetary policy, could cause a sell-off in long-bonds and a rise in term premia, paradoxically tightening financial conditions while intending to ease them. They further discuss Treasury issuance, management of the Fed’s balance sheet, the weighted average maturity of assets in the central bank’s portfolio, and how conditions in the U.S. economy measure against the Fed’s summary of economic projections.

In the second hour, Kofinas and Constan dig into the government’s finances, its fiscal picture, and how Trump’s election may exacerbate or alleviate trends that have been in place for decades. They also discuss equity markets, the broadening of the equity rally beyond the Magnificent Seven that’s been underway this year, earnings expectations for these companies, whether they’re elevated or conservative, and how we should go about valuing them.

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Episode Recorded on 11/11/2024

Transcript

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0:00.0	What's up, everybody?
0:02.0	My name is Demetri Kaffinas, and you're listening to Hidden Forces, a podcast that inspires investors,
0:08.7	entrepreneurs and everyday citizens, to challenge consensus narratives, and learn how to think critically
0:14.9	about the systems of power shaping our world.
0:18.4	My guest in this episode of Hidden Forces is Andy Constant, the founder and
0:22.8	proprietor of Damp Spring Advisors, who previously worked at Bridgewater Associates as an idea
0:28.0	generator. More recently at Brevin Howard, as chief strategist, and spent 17 years at Solomon Brothers,
0:34.7	where he served as head of global equity derivatives.
0:42.7	Andy and I spend the first hour of our conversation discussing the subject of a recent letter he published in which he warned that the Federal Reserve, by continuing to lower interest rates
0:47.0	and ease monetary policy, is at risk of losing the long end of the bond market, and paradoxically
0:52.9	tightening financial conditions in the
0:54.6	process, taking us from what could be a soft landing or no landing scenario to a re-acceleration
1:00.7	of inflation and a very hard landing for the economy. We discussed Treasury issuance,
1:06.5	management of the Fed's balance sheet, the weighted average maturity of assets in its portfolio,
1:16.4	and how conditions in the U.S. economy measure against the Fed's summary of economic projections.
1:22.2	In the second hour, we dig into the government's finances, its fiscal picture, and how the election may exacerbate or alleviate trends that have been in place for decades. We also discuss equity markets, the
1:28.6	broadening of the equity rally beyond the Magnificent Seven that's been underway this year,
1:32.6	earnings expectations for these companies, whether they're elevated or conservative, and how
1:37.8	we should go about valuing them. If you want access to that part of the conversation,
1:42.2	and you're not already subscribed to Hidden Forces, you can join our premium feed and listen to the second hour of today's episode by going to hiddenforces.io slash subscribe.
1:53.1	All of our content tiers give you access to our premium feed, which you can listen to on your mobile device using your favorite podcast app just like you're listening to this
2:01.7	episode right now. If you want to join in on the conversation and become a member of the
	...

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