The secret behind Kevin Warsh's appointment - not at all what you thought
Post number 1
You probably heard that Trump appointed Kevin Warsh as the next Fed Chair on Friday
Perhaps you've also heard interpretations, whether this appointment is good for the market or not, whether he will lower interest rates or not
In short, a lot of chatter online
We decided not to react in real time, but during this time we delved deep into the data, dug into history, and discovered amazing things
Today we lay out all the details before you, and we highly recommend sitting down with a glass of cold water, lemon, and a little mint, doing some stretches, and sitting down to read this post
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So, Kevin Warsh's appointment conceals an "Alpha" team behind it that is set to lead the new economic policy in the United States, and therefore you should know the forces operating before and behind the scenes
Meet Trump's three musketeers
Trump's economic dream team includes three senior economists, two visible to the public, and one apparently operating in the shadows behind the scenes
Behind the three is the new economic concept, "supply-side economics in the age of artificial intelligence"
Just before we explain what that is - an important point
Whether you know it or not, Trump's most vulnerable point, as proven in the past, is bond yields; even when the market crashed last year, nothing moved Trump like rising bond yields
Trump needs yields to fall, and that is precisely why he is appointing Kevin Warsh
You've probably read sensational headlines about Warsh as someone who aggressively opposed interest rate cuts back in 2008; in 2010, he also strongly opposed then-Chair Ben Bernanke's quantitative easing program (money printing), left his position in protest of "bad policy," and even called the situation "the new depression".
So how does a person who opposes money injection become the preferred candidate of a president who wants low interest rates?
It's important to know that already in 2018, Kevin Warsh changed his views completely; in an article published by The Wall Street Journal, Kevin published the new economic concept, "supply-side economics," and reiterated it here in an article he wrote on November 25
But before that, let's go back to bonds; Kevin Warsh, known for his aggressive approach and deep aversion to high inflation (he even earned the nickname 'the Hawk' due to his hawkish policies), is exactly the figure Trump needs, because when such a person lowers interest rates, the chances that the market will interpret it as cheap populism or a rubber stamp are slim; on the contrary, this man's resume proves that if he lowers interest rates, you can rest assured.
And that's exactly what Trump needs so that bond yields don't rise in response to further interest rate cuts
Here, you're probably asking yourselves, who said he would lower interest rates?
The answer is too simple
Kevin himself said so; in a meeting with Trump, he clarified that since inflation is moderating, it is certainly possible to move to a low interest rate policy
And now, to Warsh's economic philosophy, and to the additional forces operating behind the scenes
Warsh believes in supply-side economics; without delving too much into complicated economic details, the principle here is simple
There are two theoretical ways to lower prices and slow inflation
1. One is stifling demand by raising interest rates, which causes people to buy less, and consequently businesses to lower prices.
2. The second is increasing supply, making production cheaper, more accessible, and easier, bringing more businesses into the supply chain, and by increasing competitiveness, prices fall.
If you understood that, you probably realized that Warsh believes in the second way
Not only that, Warsh believes that the artificial intelligence revolution does exactly this: it increases productivity, increases supply, and increases competitiveness.
To lead this economic philosophy, somehow, Kevin Warsh finds himself working together with a Treasury Secretary who believes in exactly the same philosophy
Scott Bessent
Okay, wait, it's impossible to explain the chain of events here without introducing you to the winning team and the mentor behind them
Stanley Druckenmiller is one of the most legendary investors on Wall Street
Note the following cross-referencing of data
Scott Bessent has been considered Druckenmiller's protégé in economic concepts for 30 years. Kevin Warsh, on the other hand, is no less than Druckenmiller's partner for the past 15 years.
Coincidence?
Probably not
The combination of a Fed Chair and a Treasury Secretary who share the same economic doctrine promises one clear thing
Full and rare cooperation between the central bank and the Treasury Department
If you've read this far - that's not all - continued in the next post