Yellen’s detailed speech initially triggered an out-sized market reaction. Unfortunately, it was mainly due to shallow market depth and weak-hand positions. Yellen’s speech should quickly begin to hurt over-priced financial assets. Yellen’s speech was the first time I can ever remember a Federal Reserve Chairperson commenting that inappropriate risk-taking might be undermining financial stability. This is explicit confirmation that the Fed’s aim of lifting asset prices in the hopes they bolster broader economic activity has reached the end of its useful life. Barring a financial or economic disaster, the ‘Fed put’ has been put out to pasture.
The current surge in dis-inflationary pressures is not just due to the recent fall in oil prices, but rather a global epidemic of slowing economic growth. While Janet Yellen addressed this "disinflationary" wave during her post-meeting press conference, the Fed still maintains the illusion of confidence that economic growth will return shortly. Unfortunately, this has been the Fed's "Unicorn" since 2011 as annual hopes of economic recovery have failed to materialize. However, it is these ongoing views of optimism that have collided with economic realities.
Fed credibility questioned and Yellen sick - Palladium surges 8% - Russia and central banks buy gold - Smart money rebalancing and selling overvalued assets to buy depressed assets especially silver
"By relaxing constraints on other economic actors, central-bank support may create opportunities for them to shirk their responsibilities. In turn, this may render it more difficult for the central bank to withdraw its exceptional measures. The road to central bankers’ hell may be paved with good intentions."
- Global Markets Rebound on Yellen Speech (WSJ)
- Obama and Putin to meet; Syria and Ukraine vie for attention (Reuters)
- Obama to host China's President Xi amid simmering tensions (Reuters)
- Don't Fall for It, Xi! Chinese Take to Web to Scorn U.S.—and China, Too (BBG)
- Yellen Confirms Fed Still on Track to Raise Rates This Year (BBG)... but is still China dependent?
- Abe's New Economic Plan Confounds Analysts (BBG)
- It's All `Perverted' Now as U.S. Swap Spreads Tumble Below Zero (BBG)
"Yellen faltered at end of her speech. Last page was agonizing. I don't think she felt well but she seemed better when she left the stage."
The phrase New World Order is largely derided as a sophomoric conspiracy theory entertained by minds that lack the sophistication necessary to understand the nuances of geopolitics. But it turns out the core idea — one of deep and overarching collusion between Wall Street and government with a globalist agenda — is operational in what a number of insiders call the “Deep State.”
There is growing turmoil in buybacks that threatens the very fabric of the stock bubble. That was always the primary transmission of the foundation of its current manifestation, corporate debt, into asset prices; especially the huge run following QE3 and QE4. The problem once momentum fades is that investor attention turns toward valuations that were repeatedly ignored before. As long as everything is moving upward and any fundamental downside is completely contained (in perception) as “transitory” then valuations are easily set aside as one form of rationalization. The effect of reversing momentum is for a more honest measurement; particularly by force of change in economic sentiment which is almost always concurrent.
The One Phrase That Actually Matters In Yellen's Speech: "Nominal Interest Rates Cannot Go Much Below Zero"Submitted by Tyler Durden on 09/24/2015 17:59 -0400
"...the federal funds rate and other nominal interest rates cannot go much below zero, since holding cash is always an alternative to investing in securities. ... the lowest the FOMC can feasibly push the real federal funds rate is essentially the negative value of the inflation rate. As a result, the Federal Reserve has less room to ease monetary policy when inflation is very low. This limitation is a potentially serious problem because severe downturns such as the Great Recession may require pushing real interest rates far below zero for an extended period to restore full employment at a satisfactory pace."
When risk sold off last week in the wake of the Fed’s so-called “clean relent,” it signalled at best a policy mistake and at worst the loss of any and all credibility. Tonight, Yellen gets a do-over.
The best position for a tyrant or tyrants to be in, at least while consolidating power, is tyranny by proxy. That is to say, the most dangerous tyrants are those the people do not recognize: the tyrants who hide behind scarecrows and puppets and faceless organizations. The worst position for the common citizen to be in is a false sense of security and understanding, operating on the assumption that tyrants do not exist or that potential tyrants are really just greedy fools acting independently from one another. Being the clever tyrants that they are, the members of the central banking cult hope you are too stupid or too biased to grasp the concept of conspiracy. If you cannot identify the agenda, you can do nothing to interfere with the agenda.
As powerful as the Fed is, it isn’t stronger than the markets. And the longer the Fed tries to sustain abnormalities like QE and 0% interest rates, the more likely it is that the whole business will end with the markets crushing the Fed. At the next sign of a market swoon or of a weakening economy, or with the next episode of deflationary jitters, the Fed will do whatever it takes, no matter what the eventual damage to the dollar’s value. Whatever the details, one thing should be clear. This politburo of unaccountable central planners is the greatest risk to your financial wellbeing today.
Great companies like Hewlett-Packard are now being run not by adult professionals but day-trading punters. Carly Fiorina was one of the latter. She excelled at mastering her flash cards and pitching financial bubbles from the time of the misbegotten Lucent IPO, to her campaign for the Compaq acquisition, to her final days at Hewlett-Packard. What she didn’t excel at was learning a single thing that qualifies her to be President of the United States - not the least of which is humility. Fiorina needs to shut-up, sit down and flush her flash cards. The furtherance of liberty, prosperity and peace are not what Torquemada’s do.
Not surprisingly, the failure of the Federal Reserve to hike overnight lending rates sent a clear message to the markets that the economy was simply not strong enough to withstand tighter monetary policy. While Chairwoman Janet Yellen did her best to pass off the recent disinflationary trends as transient due to the decline in oil prices, the discussion of the potential for negative rates sent a very different message. The failure at overhead resistance, combined with a continued weak technical backdrop of momentum and relative strength, suggests that a retest of lows in the weeks ahead is a likely probability.
"We are proceeding with caution in several areas of the portfolio: many of our absolute return managers are accumulating increasing amounts of cash; we are being careful about not over-committing into illiquid investments in potentially frothy markets, while still ensuring we will be involved if market dislocations arise. ... An interesting question emerges: could rising interest rates in 2016 have an analogous impact to falling house prices in 2007, where a range of largely unanticipated second-order effects was triggered?"