Janet Yellen

Over the past several years, the two-day Jackson Hole symposium had garnered a particular prominence among economists and market watchers as this is where various key inflection points by the Fed were hinted, leaked or announced, including QE2, QE3 and the taper. This year, however, the gathering of central bankers in Teton County, will be less exciting due to the absense of the most important central banker in the world: Janet Yellen, which means the highlighter will be Vice-Chairman Stanley Fischer when he speaks tomorrow at 10:25pm  which will be a key event given the recent market turmoil.

Lost in all the stock market focus is the renewed disaster being signaled across credit markets, “inflation” expectations in particular. Here oil prices and the “dollar’s” darkening intersect with credit and broad financial settings. Quietly, market-based measures of the anticipated future “inflation” path have crashed. It can no longer be transitory, which extrapolates nowhere good for monetary policy, orthodox economics and the actual global economy. The theme for several years now has been that “they don’t know what they are doing” and once more we find that proven by “unexpected” events that were perfectly predictable outside the orthodox bubble.

The Fed could potentially go “nuclear” with a massive QE program if the markets fall far enough, but this would only accelerate the pace at which investors lose confidence in Central Banks’ abilities to rein in the carnage.

Every Federal Reserve Chair since 1979 has faced a notable challenge in the first 12-20 months of their tenure – something akin to capital markets “Bullies” hazing the new kid at school. Paul Volcker had the 1979-1980 Iranian oil shock/recession, Alan Greenspan the 1987 Stock Market Crash, and Ben Bernanke the 2007 Financial Crisis. Their responses shaped market perceptions about Federal Reserve priorities and set the stage for the remainder of their tenures, from Inflation-Fighting Volcker to Save-the-World Bernanke. Now, it is Chair Yellen’s turn...

If the last two weeks have taught us anything at all (other than that a Reg FD violation is called a "scoop" when it involves Jim Cramer and Tim Cook), it’s that China quite clearly matters - and it matters quite a lot.

Yesterday's market tumble finally brought the S&P and Nasdaq alongside the Dow Jones into correction territory, send the broader index down 11% from its highs, even as a vast majority of S&P constituents already preceded the index and are either in correction or in bear market territory. And yet, following today's latest central bank intervention, this time in the long overdue Chinese interest rate cut (which will hardly have a lasting impact on either the economy or stock markets), the S&P correction may may prove to be short lived: S&P is poised to open about 4% higher, delivering the latest "Bullard" moment to the S&P, this time courtesy of China. Still, the question remains: was that it for the long overdue correction, and what comes next.

The correction may soon morph into a full-fledged bear market if the Fed makes good on its supposed intentions to raise interest rates this year. Have no illusions, while most market observers are quick to blame the sell-off on China, this market was given life by the Fed, and the Fed is the only force that will keep it alive. Unfortunately for the Fed, it won't be able to get away with doing nothing for too much longer. Events may soon force it to show its hand. Then perhaps some may notice that the Fed is holding absolutely nothing and has been bluffing the entire time.

So now comes the era of gluts, shrinking profits and a drastic deflation of the giant financial bubble that the world’s central banks have so foolishly generated. And this time they will be powerless to stop the carnage. Yet the beleaguered central bankers will launch desperate verbal and market manipulation ploys to brake the current sell-off and thereby preserve the bloodied remnants of their handiwork.  When in response the gamblers make their eighth run at buying a dip that is now rapidly turning into a crater, it will be an excellent time to sell anything in the casino that isn’t nailed down.

The only question, now that stocks are back to their fair excess-liquidity implied value, is what happens next?

What struck me, thumbing through the reactions, was the sharp contrast between those who apparently support these two nincompoops and those who didn't. 

Imagine that the Food and Drug Administration (FDA) was a corporation, with its shares owned by the nation's major pharmaceutical companies. How would you feel about the regulation of medications?  Whose interests would this corporation be serving? Or suppose that major oil companies appointed a small committee to periodically announce the price of a barrel of crude in the United States. How would that impact you at the gasoline pump? Such hypotheticals would strike the majority of Americans as completely absurd, but it's exactly how our banking system operates.

Somewhere Janet Yellen is smiling a "told you so" grin as she watches the "stretched valuations" of the Biotech index get slashed. Biotechs are now down 22% from the highs  - officially a bear market - and just broke the crucial 200-day moving average for the first time in 10 months...

When we see guys like Bernie Sanders get visibly angry at guys like Alan Greenspan it behooves all of us to go beyond the entertainment of it or some prima facie agreement and to truly understand why the anger is justified. If we were to all take the responsibility to understand the lifeblood of our American existence i.e. the economy, we will most certainly be moved to remove not only the policymakers but the system that together serve only those at the top of the economic food chain and at a cost to the rest of us. When we do we will be asking why in the hell is no one yelling at Janet Yellen??

With the confused FOMC still stuck on the fence of raising rates (or not), here are ten reasons why they won't.. and a caveat in case we're wrong...

Seconds ago, someone accidentally (we hope) pulled a Janet Yellen as the following just came across the wires

FOMC MINUTES: MEMB 'GENERALLY AGREED' MORE INFO NEEDED TO HIKE
FOMC MINUTES: NO TIP TOWARDS SEPT LIFTOFF, DOESN'T RULE IT OUT

But the bottom line is that the Fed just admitted things are going from bad to worse: "The risks to the forecast for real GDP and inflation were seen as tilted to the downside." The question now is what comes first: QE4 or the first rate hike in nearly a decade.