Janet Yellen

Yes, it is that magical week leading up to Christmas and the subsequent low volume push into the new year. It is "magic time" as hopes are high that "Santa Claus" will come to WallStreet. "Ignoring valuation – ignoring risk – is a recipe for disappointment and is the thing that is most likely to lead investors to ruin"

Yellen doesn’t care about the economy. She cares about the US’s massive debt load AKA the BOND BUBBLE.

As we have noted in the last two days, on the heels of Janet Yellen's mutterings, US equity markets have exploded higher even as the highly correlated and causative oil prices have done anything but rise. This 'fact' has not escaped BofA's Hans Mikkelsen's attention as he warns, "While stocks currently are getting a break from oil, it appears most likely that they reconnect when the decline in oil prices accelerates – especially if we see associated weakness in credit and EM." And sure enough, modestly at first, the two are starting to converge this morning...

Shifting consumption from gasoline sales to retail sales does not create economic growth. It is just a "shift" in where the same dollars are spent. However, there has been much "hoopla" over the recent retail sales report for November that saw retail sales jump for the month by 0.7%. While on the surface this appears to be a strong retail sales report, a quick look below the surface quickly destroys that claim.

Russia supplies China with hi-tech military hardware. Russia has negotiated two major natural gas deals with China in the last year. China expects to double its gas usage by 2030. From a Chinese point of view, it is certainly expedient to keep Russia on its side.

The financial media is euphoric because stocks are rallying. But stocks are ALWAYS the last to “GET IT.” The currency markets (which trade $5 trillion per day) realize that something MASSIVE is underway. And it’s only just beginning.

After drifting unchanged for much of the overnight session, US futures exploded higher shortly after the previously noted SNB's NIRP announcement, which took place at 2 am eastern, which made it explicit that yet another banks will herd the bouncing dead cats right into new all time stock market highs, and following the European open, were carried even higher as the global "risk-on" momentum ignition algos woke up, spiking all recently depressed assets higher, including energy as Brent rose almost 3% despite Saudi Arabia’s oil minister Ali al-Naimi once again saying "it is difficult if not impossible" for OPEC and his kingdom to reduce output.

Having added further confusion to the markets by keeping "considerable" and adding "patient", suffered 3 dissents (1 dove, 2 hawks), and explaining that the energy price drop is "transitory", we suspect Fed Chair Janet Yellen will have some 'splainin' to do during today's press conference. Is "patient" longer than "considerable time" and just what (Dow Jones Industrial Average) data is the Fed dependent on now?

In the 2003-2004 playbook, “considerable period” gave way to “patient” as a signal that the hikes were drawing closer, and it is interesting that the words “patient” or “patience” have shown up quite frequently in recent Fed speeches. The problem with a simple shift to “patience” without any qualifications on December 17 is that back in 2004 this shift occurred just 4½ months before the first hike, and some market participants might therefore take it to mean a hike before June.

America has created a moral hazard for all Americans in that we feel we always have a fail safe no matter what we do because we’ve always succeeded.  But so too had every other great dynasty until it didn’t.  If we do not force a change in our economic policies we are very close to and perhaps already past the point of no return.  I have no witting quip to end this article.  The economic landscape we face today is nothing short of dire.  And at the risk of sounding overdramatic we either force a policy change, suffer the short term pain and restructure or we and all future generations will live in a very different America from the one our folks left us. 

“Can a debt crisis be cured with more debt?” it is difficult to envision a return to normalcy within my lifetime (shorter than it is for most of you). I suspect future generations will be asking current policymakers the same thing that many of us now ask about public smoking, or discrimination against gays, or any other wrong turn in the process of being righted. How could they? How could policymakers have allowed so much debt to be created in the first place, and then failed to regulate their own system accordingly? How could they have thought that money printing and debt creation could create wealth instead of just more and more debt? How could fiscal authorities have stood by and attempted to balance budgets as opposed to borrowing cheaply and investing the proceeds in infrastructure and innovation? It has been a nursery rhyme experience for sure, but more than likely without a fairytale ending.

The Fed can do only do two concrete things to influence these income and credit sources of spending - both of which are unsustainable, dangerous and an assault on free market capitalism’s capacity to generate growth and wealth. It can induce households to consume a higher fraction of current income by radically suppressing interest rates on liquid savings. And it can inject reserves into the financial system to induce higher levels of credit creation. But the passage of time soon catches up with both of these parlor tricks.

With the average hedge fund down 1% year-to-date, it is perhaps no surprise that investors are pushing back against the fee structure... Pension funds and other investors called for changes Tuesday in the way hedge funds charge fees. The proposed changes were outlined in a statement by the Alignment of Interests Association (AOI), a hedge fund investor group to which many pension funds belong. The group said that hedge funds should only charge performance fees when returns beat benchmarks, and that fee structures should better link fees to long-term performance.

It’s not just voters who buy into popular myths. Many investors do too. Few have wider appeal than the myth that central banks can create economic growth via the printing press.

While the media continue to just about exclusively paint a picture of recovery and an improving economy, certainly in the US – Europe and Japan it’s harder to get away with that rosy image -, in ordinary people’s reality a completely different picture is being painted in sweat, blood, agony and despair. Whatever part of the recovery mirage may have a grain of reality in it, it is paid for by something being taken away from people leading real lives.