By Tom Luongo
Gold Goats 'n Guns
August 5, 2026
I'm an 80's child in the end. That means when I start working on a new project some random song or movie moment comes unbidden into my head from that weird and wonderful decade.
The movie Real Genius ends with a rising dolly shot while Tears for Fears sets the tone for the fade out, of a house destroyed by popcorn. This classic comedy about smart kids outsmarting their professor, the odious Jerry Hathaway played to slimy perfection by Bill Atherton, who has them working on a "lasers from space" project for the MIC so he can make money is where my brain went today.
He's Anthony Fauci but with better hair and the same level of smug self-awareness.
"You unbelievable bastard," says Chris Knight (the late Val Kilmer) when he finally realizes how thoroughly he's been used.
"Count on it," replies Hathaway haughtily.
That level of arrogance was on display in the Senate yesterday when Dr. Mengele illegally invoked the 5th amendment 111 times. And a thousand political ads were birthed as a moral imperative against evil.
But I didn't come here this morning to talk about Fauci, what happens to him is ultimately irrelevant. He may go to jail, he may not.
Personally I want to see him placed in stocks at the head of the Washington Reflecting Pool for 4 hours a day and let people to lob eggs and tomatoes at him until his body gives out.
I bet we could balance the budget with the money raised selling Fauci bombs. Think of popcorn sales if it's simulcast on C-SPAN!
Think of the farmers!
But, in the end, Fauci will fade from the public spotlight and leave this world without the only thing that should matter to an 85 year old man, his reputation.
Ultimately, Fauci represents the past. And that's what I want to talk about this morning. Because something else happened on that day which points to the future.
The Fed released its latest statement on interest rates. It wasn't much.
I Went Down to the Crossroads...
We are at a crossroads, an inflection point, between the sins of the past and the promise of the future. Nowhere is this more evident but in financial commentary.
Kevin Warsh has stated explicitly that he is not governing the Fed by the Phillips Curve - the trade off between employment and inflation. I did a deep dive into this statement and its refutation of both John Maynard Keynes and Milton Friedman in this month's Gold, Goats ' n Guns Newsletter.
What I find fascinating today is how many people refuse to take the new Fed Chair at his word. And this is not just coming from the usual suspects in the Austro-Libertarian-Bitcoin-Gold Industrial Complex. Those people are as predictable when it comes to money and the Fed as Blue Sky'ers and Democrats are to Donald Trump.
They've become their own set of memes, and sadly, those memes aren't even funny anymore. What used to look like biting sarcasm now just comes off as bitter irrelevance, but hey at least they can still think they can claim the moral high ground, unlike Dr. Fauci.
But the flak coming at Warsh is coming from the normies as well. It's like every one needs to have an opinion and be pissed off about something all the time.
My good and dear friend Vince Lanci ( @sorenthek) noted this yesterday:
Ultimately, no matter what happened at the FOMC yesterday Warsh was going to be excoriated:
This sounds like grievance airing, but it isn't (well, okay it is a little). It's indicative of the real problem we face going forward, which is that this fundamental change in FOMC rate policy is orthogonal to the way we've been trained to think about markets and the Fed's role in it.
And that lack of understanding was, in my opinion, on full display in the aftermath of Warsh's presser, which the markets hated with a purple passion.
At least for a few hours or so.
If I read one bad take on the Fed and the subsequent bond market sell off yesterday I read a hundred this morning. Prior to the meeting too many people were betting on the Fed hiking rates. There was a big push to create the 'believe me' look that Warsh was trapped by inflation expectations and therefore he needed to raise rates here.
I'm Batman... or Something Like That...
Last Friday, the US yield curve was above the Fed's target rate zone of 3.50-3.75% for the first time this cycle. The 30-day T-Bill closed at 3.773% and we had an upward slope from there out...albeit with some kinks in the slope.
Now really... Believe me ! Where's Admiral Ackbar when I need him, because this trap is lame.
Unlike a lot of people I don't believe in fairy tales, this is why I don't believe in bond vigilantes. I do, however, believe in national interests playing out as monetary policy.
So, while free market adherents still want to believe they are more powerful than central banks, I'm not so sure anymore, especially after watching the ECB, SNB, BoE and BoJ (until recently) undermine US rates for the past fifteen years.
Show up any freakin' day now, boys!
On Tuesday, during the FOMC meeting, the SOFR Futures Strip looked like this at roughly the New York open, pricing December 2026 money at 4.14%, implying not one but two rate hikes by December.
NO REALLY ! Believe me!
Before the meeting Jim Bianco noted that the real threat for Warsh was that there could be a full on civil war inside the Fed itself which could neuter Warsh before he's even established himself.
Jim's thinking was salient, and he's one of the few people left on Fin-Twit I turn to when I want rational analysis on most days.
Then Warsh won his first battle at the Fed, over three objections, one of whom is always on the wrong side of what's good for the US, Neil Kashkari, and held rates steady.
In the ensuing press conference, the wailing about his unwillingness to give answers that made any sense annoyed everyone while they tried to justify the Keynes/Friedman orthodoxy of the Phillips Curve (and gild their arrogant superiority) as the US Treasury market sold off.
And then Warsh went to the podium and talked everyone in circles, while the financial press asked the same question eight different ways (another H/T @biancoresearch).
Thick as a Brick
But here's the thing, folks. It's all a dance. They pretend the markets are free, which justifies shamanistic invocations of "laws" which don't exist, like the Phillips Curve, while central bank connected traders and those drafting off them reinforce shibboleths which aren't true.
And the real knives come out when someone is in a position of power who refuses to validate this insanity.
So, as opposed to everyone getting philosophical, how about I give you a different framework to judge these events based in realpolitik and basic tribal behavior.
Warsh created a new layer of (strategic?) ambiguity by ending forward guidance, which created simple dollar stress in overleveraged equity, bond and currency markets. As Brent Johnson ( @santiagoaufund) is fond of saying...
Everyone piled into dollars and out of USTs because of this uncertainty, and someone helped that along because anything to punish the new Fed Chair who isn't down with the Keynesian sickness is someone that has to be destroyed.
But it failed. No revolt. Just 3 dissentions and the Bank of Japan is on deck, which is what really worries these aforementioned central banks. The long end of the yield curve was sold but the short-end was reinforced.
Moreover, that SOFR Strip ? Collapsed 10 bps in 48 hours.
But for a couple of hours the "believe me" look held. The USDX reversed hard, from 101.47 to 100.08 this morning. The USD/JPY sharply strengthened ahead of the BoJ's rate decision tonight, at 159 and falling.
Warsh got what he wanted. A short end back under the target range, and less market dependence on his invocations. And if the BoJ raises, the yen carry trade gets squeezed by 25 bps (or 50?) and that puts a lot of people's financial nuts in a tightening vice.
I think the real stress is in Europe and that's why I'm always skeptical of headlines blaring about 30 year bonds hitting new high yields. These are illiquid markets, compared to the the 10's. So, as always, when you have trillions of dollars of hostile central bank reserves out there, believing it's a free market when they put their thumb on the scale by selling 30 years aggressively to hold other rate spreads within certain bands (looking at you Germany, France and the UK) is a fool's errand.
This isn't me saying there isn't a bumpy ride in front of us. Far from it. If anything, I'm telling you that what I see as the big fight, the strategic fight, which is over the right to control the cost of global credit. And those who traditionally have controlled those levers they will be willing to burn everyone to the ground in order to defend that right.
That isn't a market function. It's a violence function, dressed up as policy, hidden behind technocratic jargon, and stage-managed by the economic calendar.
And once you accept that as your framework, it becomes a lot more satisfying to sit back, pop open a cold one, and fire a big ol' laser at a house filled with popcorn.
This article was originally published on Gold Goats 'n Guns.