In December 2019, I looked across the room at a Harvard Club event honoring David Rubenstein and I spotted Federal Reserve Chair Jerome “Jay” Powell at the front table, there to pay respects to his former boss. I was (almost) as giddy as when Mick Jagger pranced past me at Annabelle’s in London 10 years earlier. After the Harvard dinner, I was surprised to see Jay Powell standing alone — it seemed I was the only person there to recognize this financial rock star. So, I approached him and introduced myself as having studied economics and complimented him for standing strong against Trump’s browbeating.
Powell thanked me and perked up when he heard I was an economist, and introduced me to his wife who studied economics at Harvard. It was a brief interaction. But years at Davos have reinforced to me that you can learn a lot about a person from a short interaction. The resounding impression I had was that Powell was a truly kind man. And from a Fed policy perspective, I could only think, “This man does not want to be Herbert Hoover.” At a minimum, this instinct told me that Powell’s Fed was weary of a taper tantrum a la 2013 and they would leave rates lower for longer. Equities would continue to outperform as long as there was no alternative (like a decent yield on bonds) and new cash would continue to flow towards equities raising prices and valuations.

The analogy isn’t perfect, as Hoover was the U.S. president and Powell is the Fed chair. Nonetheless, Hoover is the name associated with the Great Depression. And I came away from our brief meeting feeling that Powell would do everything in his power to make sure he’s would not lead a deep and lasting market slide that turns into a recession. The Fed chair would be tested just three months later with the Covid sparked crash.

Powell’s 2020 Market Rescue
The risk of a Great Recession or even a Great Depression was looming in March 2020 as the coronavirus pandemic quickly spread. The month before, I was the first person (that I know of) to publicly write that Covid was being underestimated and could lead to a devastating market crash. In “Is the Coronavirus the Black Swan to Trigger a “Black Bat” Market Crash?” I wrote that Covid was a Black Swan more than 10 days before Sequoia wrote a warning to its clients. Luckily, I had repositioned my clients more than a week before. I sold real estate stocks and bought Zoom and Moderna — leading to a 40% equity return last year with the same diversification and risk of the S&P.
Indeed, just a few days made tons of difference. From the pre-Covid market peak on February 19 to its trough on March 23, the S&P fell 34% as the economy literally shut down. The bond market took a bit longer to catch on, but it started to fall in early March when seemingly safe bond funds fell 9% and the high-yield market fell 22%. I warned that it could fall further given the precedents of the 2001 and 2008 crashes, in which markets fell 50% from peak to trough.
So what happened to turn the tide? Powell led the Fed in unprecedented weekend meetings and championed rate cuts. Like Mario Draghi, who had forestalled a European crisis years before by pledging to do “whatever it takes” to save the markets, Powell announced a Fed funds rate near 0, a relaunch of bond buying, and a generalized pledge to support the economy — even equities if necessary — to support the markets. The bond and equity markets started to stabilize, helped by the CARES Act package on March 27, and the equity market surged 68% to end the year up 16%. Bond funds yielded a 5% appreciation.

With these bold strokes, the bond and equity markets escaped massive downturns that could have led to a second Great Depression. Again, I think of Powell as a leader who will do whatever it takes to avoid going down in history as a modern-day Herbert Hoover. He proved it beginning in March 2020, and I suspected he would be lower for longer on interest rates thereafter. (A suspicion that has so far proven true.) After all, who wants to take away the punch bowl? In some ways, the Fed Chairs are in a game of hot potato - trying to hold the prestigious title of Fed Chair but not having to make the perhaps cataclysmic decision to end the liquidity party that has been fueling the markets.

I read or hear other Fed governors and economic pundits proclaim that Powell will or must raise interest rates. But too often they’re projecting their own views or waxing bullish just so they’ll be interviewed on television or further burnish their press profiles.

Goldman Sachs just published a prediction that a Fed liftoff, the Fed’s first interest rate hike, earlier than expected in July 2022. For the Federal Open Market Committee, Goldman Sachs sees what it describes as a ‘seamless’ transition from tapering to rate hikes,” it said.

These skeptics may be expert economists and Fed watchers. But they’re missing the human element. Who is the Fed chair who must pull the trigger on rates and what makes him tick? And how will he react under pressure? Does he care if he sees homeless encampments, “Hoovervilles,” when he drives to the office? Studies show up to 90% of communication can be nonverbal. I believe I “got” Powell when I met him because I could assess more than just his words uttered in an official capacity. So far, this understanding of the Fed’s intent has served my clients, and me, very well. 
Biden’s New Pick?
Now Biden is reportedly deciding whether to elevate Lael Brainard to the Fed chair role and displace Powell. I’ve never met Brainard, but I am one of the few people and even fewer women in the world who chose the same college educational training as her. I attended the same college and majored in the same small and select interdisciplinary program as Lael Brainard - the College of Social Studies at Wesleyan University.

When I graduated high school, I was a valedictorian with top scores and a Harvard legacy father — but I refused to apply to Harvard College. I had attended a high school program at Oxford University and was set on its Philosophy, Politics, and Economics course of study. I also loved the small tutorials at Oxford and wanted a college in which I could study with professors in 10- to 20-person classes, where we could thoroughly debate the great works that gave rise to our understanding of capitalism and democracy. 

Not only would we read the textbooks that explained the supply and demand curves but we would read Adam Smith’s The Wealth of Nations and read about the historical and intellectual context that gave rise to economic theory. My senior thesis strove to understand how profit was viewed by economic theorists from Adam Smith and his invisible hand to Karl Marx, John Maynard Keynes, Joseph Schumpeter, and Friedrich von Hayek (who may be my relative on my Jewish Austrian grandmother’s side). It was a demanding major, jokingly referred to as “The College of Suicidal Sophomores.” It only accepted 30 students per year, and women made up less than 25 % of this small cohort. One-third of the students dropped out my year. Dr. Scott Gottlieb, the former FDA Commissioner and Covid expert extraordinaire, was at Wesleyan one year ahead of me but chose the "easier" major of economics ;)

Jerome Powell didn't study economics and I think Brainard's study of not just economics but of its intellectual roots are fabulous training for a Fed chair. To understand not just current economic theory but to have read the great thinkers that derived those theories, and to be able to debate the pros and cons of how they resonate today, are undeniable advantages. I just saw a Republican Congressman speak about fears that the Democrats were trying to bring Socialism to America. I know Lael Brainard has studied the history of socialism’s rise during the 1789 French Revolution and read original works by Karl Marx and Max Weber. If she uses the term socialism, she knows what she is talking about. Having grown up in West Germany and Poland during the Cold War, she also knows the nature of the perversion that communism turned into in the former Soviet Union. She also probably understands how European countries like the UK and Germany can have universal health care and a basic safety net for people without falling victim to Putin’s predecessors. 

Powell vs. Brainard
Biden doesn’t have an easy choice, but at least he has two highly-regarded dovish options. Both Fed chair choices will be very supportive of the markets and the economy. As a woman in finance, I know Lael must have proven herself many more times over than most men for her right to be in the running, not often benefiting from the mentorship and the benefit of the doubt that her male peers likely received. (Maybe it helped to have “Brain” in her name to constantly remind those men that she had one.) Even outsiders admit she is eminently qualified. My main worry is that the Biden Administration has an ambitious agenda and has lost political capital of late. A new pick for the top job, and a registered Democrat, would likely create another confirmation battle while Powell would fly through. As my late father used to say, “don’t let the perfect be the enemy of the good.”

I ultimately chose to manage money because I liked being judged by my numbers and my performance, which has far outperformed the vast majority of money managers on a risk-adjusted basis. I was up 40 % last year versus 16% for the S&P last year and was one of the first to realize how Covid would negatively affect the markets. I bought into stocks which would benefit from the crisis and tried to limit the downside market risks, which would have been much worse had Powell and the Fed and Congress not reacted so quickly. 

There is much talk comparing Powell and Brainard right now, but ultimately they are both dovish and will likely leave interest rates lower for longer. If Biden picks Brainard, there may be a dip in the markets. As a registered Democrat, the markets will like her less and a hostile confirmation would bring uncertainty to the markets. She also is known to be more prone to regulation - a reason that she may be appointed as the Vice Chair in charge of this aspect.

If the markets dip on a Brainard Chair nomination, I’ll take the opportunity to buy companies that I like at a discount for my clients. On that note, there is a lot of froth in the market, so I will be selective. Rivian, which has only manufactured 42 vehicles and has no revenue, soared to $126 billion market cap in its IPO these last few weeks. just became the new name of LA’s Staples Center. Covid, stimulus checks, and Robin Hood have brought a lot of people into the market who are investing in companies and crypto which sound cool but don’t have the financials to justify the prices they are paying. In this respect, the dot com bubble is reminiscent. I’m usually a growth investor but this is the time I am adding some more value stocks to my portfolios. With the infrastructure bill, some industrials are poised to perform. And oil stocks, well oil and big bad energy stocks, have hit an inflection point and prices may stay elevated for longer than people realize. More on that later.

If you are receiving this newsletter, we have met in person and exchanged business cards. It would be great to reconnect on a personal level. Please let me know how you are doing and appreciate any feedback on which ideas you agree with as well as those you don't. I'm always up for a healthy, respectful intellectual debate ;)

Best regards, Maya
Maya is a Harvard-trained economist who leverages her two decades of top-level experience across Wall Street, the City of London, emerging markets, and advanced technology to devise investment strategies for her clients. She advised the CEO and Board of Rio Tinto on macroeconomic and geopolitical concerns. Maya founded Meta Point Advisors after several years as a Financial Advisor at Merrill Lynch. Maya's clients benefit from her ability to provide savvy active management without the cumbersome costs and structure of mutual funds. She has been quoted in The Wall Street Journal, Barron’s, and the World Economic Forum.

Marisa Joelson holds a MPA from Harvard Kennedy School, a MBA from Kellogg at Northwestern University, and a BA from Wesleyan University.