This Is What Trump Was Really Doing When Shock Report Emerged That He Might Fire Powell | Hakimian - video Dailymotion

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On "What's Moving Your Money with Spencer Hakimian," Spencer shared his take on the market-rocking drama yesterday when a report emerged that President Trump was planning to fire Fed Chair Jerome Powell that was followed by Trump's swift denial.  Read the full story on Forbes:   Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1  Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:  https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript  Stay Connected Forbes newsletters: https://newsletters.editorial.forbes.com Forbes on Facebook: http://fb.com/forbes Forbes Video on Twitter: http://www.twitter.com/forbes Forbes Video on Instagram: http://instagram.com/forbes More From Forbes:  http://forbes.com  Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.

Transcript

00:00Hey everyone, it's Spencer Hakeemian and welcome back to another episode of What's Moving Your

00:04Money. On today's episode, we're going to cover all the drama that's happened in the past 24 hours

00:10between Donald Trump and Jerome Powell. We're going to talk about the market reaction to all

00:15of this news, both the news and the walkback of the news. We're going to talk about why it is so

00:22important to have an independent Fed chair and what it would mean if we did not have an

00:27independent Fed chair. And finally, we're going to cover one specific thing that I saw in market

00:34pricing that I don't think anyone else really caught or spoke about so much, but it was very

00:40indicative of how the market would react in the event that we get a puppet Fed chair. So stay

00:46tuned. I know we've had a busy week. Let's get right into it. So around last night, we started

00:55getting some rumors online on Twitter, on the Wall Street Journal, on other media publication outlets

01:01that President Trump was considering firing Jerome Powell. Now, no legitimate reason was given. As you

01:09all know, the Fed is an independent agency. It is not under the jurisdiction of the United States

01:15government. The president does not have any right to fire the Fed chair unless cause is proven. And the

01:22only cause that the White House has suggested thus far is that Powell approved a renovation

01:31of a part of the building that they work in. I don't really understand how you could justify firing

01:36him over that. Needless to say, this would be an egregious overstep of what would be traditionally

01:42considered presidential powers. But nonetheless, it came out anyway. And then this morning at around 11

01:49a.m., it started leaking all across Bloomberg terminals all around the world that Trump was

01:55considering firing Jerome Powell as soon as tonight. Now, that sent markets into a tailspin,

02:02right? And we're going to cover that in a minute. But first, let me just continue with the story. And then

02:07about 45 minutes after the market basically puked at Trump's announcement, suddenly Trump came out

02:14during an interview and said, no, I had no intention of firing him. That's fake news. I didn't intend to

02:20do that. And then he essentially walked back the plans he leaked. Now, whether President Trump was

02:25just testing the waters to see what the market reaction would be. We also saw him do something

02:31quite similar back in April during Liberation Day that we had Hassett go on TV, Kevin Hassett, and essentially

02:39say what they were planning to do with that 90 day pause, just so that they can gauge the market

02:44reaction. And then they came out minutes later and said, no, that's fake news. We never said that.

02:49So this could be one angle that Trump is taking care. He wanted to test the waters to see how would the

02:55markets react in the event that he actually did go through with firing Jerome Powell. And let's get into

03:01that right now. The market reaction was horrendous all across the board. Horrendous. Within a few

03:09minutes, the S&P 500 had fallen close to a full percentage point. The Nasdaq had fallen by more

03:16risk assets like Bitcoin, even that sometimes would even in theory benefit from a non-independent

03:23federal reserve that fell bond yields, long bond yields spiked 10 basis points, 10 year, 20 year,

03:3130 year bonds all rose by more than 10 basis points in a span of minutes, minutes. These usually take

03:38weeks or months to happen. It happened in minutes. The dollar fell against all major currencies. So if

03:44you want to look at the euro, if you want to look at the yen, if you want to look at the pound,

03:48whichever major currency you want to look at, it fell. In fact, the only asset that rallied was gold.

03:55Why did gold rally? Well, because gold is a neutral currency that no country controls.

04:00You cannot print more of it. You cannot artificially tamper with the supply of it. You cannot tamper

04:07with the interest that you get charged with it. So all of these things that a puppet fed chair would

04:12in theory be able to do, that would all be negative for the longevity of the dollar, for US debt,

04:19for our economy overall. Gold does not suffer from any of those. So that is exactly why it rallied.

04:25Remember, it's not that gold is getting better. It's that dollars are getting worse. This will be

04:31a recurring theme of this show. As you see, I'm wearing a Bitcoin hat right now. I'm a firm believer

04:37in hard money, in uncorruptible money. Fiat, the human nature is to corrupt stuff over time.

04:45Fiat is a perfect vehicle for stuff to be corrupted with. So that handles it for market reactions for

04:53now. Let's just also get into why it is so important to have an independent fed share. You

04:59know, a lot of the viewers of this show are not just financial professionals like you and I,

05:04some of them are people that, you know, just want to catch up on the news. They just want to

05:08understand a little bit of what is happening in the world as it relates to things that are

05:11economically charged. So I also just want to talk briefly about why an independent fed chair matters.

05:18The reason why it matters in theory is that you want a federal reserve chair who is in charge of

05:25monetary policy, the supply of money, the price of money, which is interest rates, all of those things.

05:31You want someone that is not going to make his or her decisions based off of winning an election

05:39in a year time or in two years time, right? Politicians, they have every incentive in the

05:45world on the fiscal side to run everything hot all the time. You saw this with Trump. He campaigned

05:51on those. He campaigned on cutting spending. He campaigned on reducing the deficit. His latest tax

05:57which might end up being his only legislative accomplishment of the first two years of his term

06:04ended up raising the deficit. It ended up making our problem worse. It ends up adding to the debt.

06:10Why? Because when you add deficit money to the economy, you grow the economy nominally in the short

06:16term, right? And everyone likes to do that. It gives employment a boost. It gives stock and home prices a boost.

06:21It makes people feel good. That's why it's called stimulus. Just like a coffee. It's a stimulant.

06:26It's the same idea, right? But you want an independent Fed chair. You want the other half

06:33of monetary policy being independent because you need someone that is not fearful of winning or losing

06:41an election that can do what's actually right about the economy. Could you imagine if back in 2022,

06:47Jerome Powell refused to raise interest rates when inflation was 9% because he was fearful of losing

06:53an election? We'd still be dealing with an inflation crisis now, right? Fiscal was out of control in

06:592022, right? So much stimulus in 2020, 2021, 2022 was put into place on the fiscal side both by Trump

07:06and Biden. If Powell was not there to take away the punch bowl, right? We would still be in this disaster

07:14right now. Fortunately, we're not in such a disaster at the moment. But that is why you need

07:20an independent Fed chair. You need someone that is fearless, that does not have to wake up in the

07:26morning and say, gee, if I do this, I'm going to be unpopular and I'm going to lose reelection.

07:31The Fed chair is there to do what is right regardless of the popularity of it. And we created this because

07:37we know that politicians, because they have to get reelected, cannot have this. They have an implicit bias

07:44to want to please people. Raising interest rates is painful, right? Cutting interest rates is easy,

07:51right? But it can lead to inflation. It can lead to a spike in long bond deals like we saw last year.

07:56I was heavily criticizing Powell back then about cutting rates. So that's that section.

08:03And the final thing before we go here, I just want to talk about a very fascinating divergence that I saw

08:10in the bond market today as I was trading it, right? We saw the two year yield. We saw it fall by 10 basis

08:18points in five minutes after the announcement that Trump was intending on firing Powell tonight. At the

08:24same exact time, we saw 10 and 30 yields rise by 10 basis points. So the yield curve, the curve steepened

08:34by 20 basis points because the front of it dropped by 10 and the back of it went up by 10. So when you

08:40combine it, that's actually a 20 point steepener that happened. And this is very interesting because

08:46what the market is saying is, yes, we know that even if Trump doesn't fire Powell, Powell's term is done

08:52in May. Trump is going to appoint a dove to be the Fed chair. A dove means someone that's inclined

08:58to cut interest rates to expand money supply. And then the opposite is a hawk. A dove as Fed chair is going

09:05to cut rates, whether it's intelligent to do so or not, right? The two year, the front of the curve is

09:12what is most heavily impacted by the Federal Reserve's policy rate, which is the overnight rate, right? Beyond that,

09:20it is actually a market pricing tool. It is the market's estimate of inflation, growth,

09:27credibility, all of these types of things. So essentially, inflation risk premium has to get

09:33priced in in between year two and year 10. That entire duration, all those years that you might

09:38get inflation, you might get problems, you might get credit risk, all of these types of things.

09:44That's what appears in the back end of the yield curve. So when you see the 10 year, the 20 year,

09:49the 30 year, selling off by 10 basis points, selling off in this case means rising, because

09:54when bond yields rise, prices go down. When you see that happening, right? You are getting the market

10:01telling you, the market is telling you that inflation is a fear right now. Credibility is a fear right now.

10:09Overheating the economy by putting rates at let's say 1% is a fear right now. The market is telling you

10:16this is bad, bad monetary policy. This is a bad idea coming from the White House. It should stop.

10:24This is not what we want. If we want to become like Turkey or Venezuela or Argentina or Zimbabwe or

10:31South Africa or any other country around the world with an unstable monetary policy, with an unstable

10:37currency, with unstable inflation, we can do what we suggested to do today. But if we want to continue

10:43being the United States, if we want to continue being a healthy, dynamic economy that can grow in

10:49real terms, not just in nominal terms, we have to have an independent venture. So I'm going to leave it

10:55at that. Who knows what tomorrow's episode is going to bring. It's a 24 hour news cycle, but I'm very

11:00excited to see you guys nonetheless. And I hope you guys enjoy and I'll see you all tomorrow.

11:04Bye.

11:09Bye.

11:10Bye.

11:11Bye.

11:13Bye.

This Is What Trump Was Really Doing When Shock Report Emerged That He Might Fire Powell | Hakimian

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