Janet Yellen

With a nod to the absurd, Federal Reserve Chair Janet Yellen freely admitted earlier this week that the Fed really has no idea what’s going to happen to the economy.

The only thing that can be said about Janet Yellen’s simple-minded paint-by-the-numbers performance yesterday is that the Keynesian apotheosis is complete. American capitalism and all political life, too, is now ruled by a 12-member monetary politburo, which is essentially accountable to no one except its own misbegotten doctrine that prosperity flows from the end of a printing press.

While Janet Yellen yesterday explained that low levels of realized and expected volatility in financials were not a signal of complacency; we suspect, like The Fed's Bill Dudley, some are concerned she is talking out of her academic ass... As JPMorgan warned, volatility currently is entirely dislocated from fundamentals, and the day of realization is approaching...

Currently there is a great debate within the financial media on the who’s right – who’s wrong, as both sides stare at a financial market that seems to go ever higher with every morning bell. In actuality, it’s both, and neither. Currently the macro economy is being expressed via circumstances resulting from a myopic view of participation. i.e., The financial markets. All of those fundamental based principles have been annexed to what one solitary person will do – then say. That person was Ben Bernanke. Now it’s been codified via the markets recent reactions to Janet Yellen. All of those fundamental based principles have been annexed to what one solitary person will do – then say. That person was Ben Bernanke. Now it’s been codified via the markets recent reactions to Janet Yellen.

But, but, but... Janet Yellen didn't say precious metal valuations were within historical norms? Gold and Silver are surging today (and have done since the FOMC press conference all-clear) with the latter having its best day in months and back at 3-month highs... Intriguingly, just as we warned, gold and silver have been on a significant tear since the Qingdao CCFD probe began (as synthetic hedges are unwound - which dominate pricing in PMs) while copper and iron ore and so on have all fallen (as the reality of no real demand leaks into these commodities).

She came, she spoke, and she sent stocks to a new all time high. That is perhaps the simplest summary of what Janet Yellen did yesterday when, as a result of her droning monotone, she managed to put the VIX literally to sleep, which closed at the lowest since 2007 and the resulting surge in the S&P was a fresh record high, because despite the "concerns" Fed member have about record high complacency, all they are doing is adding to it. And now that apparently the Fed has a market "valuation" department, and Yellen can issue fairness opinions on whether the S&P is overvalued, the only question is whether today, as a follow through to yesterday's "buy everything, preferably on leverage, sincerely - the Fed" ramp, the VIX will drop to single digits today.

Yellen has got to be the most dovish Fed chairperson going into the most important policy initiative withdrawal phase ever to be recorded since the inception of the Federal Reserve! 

Moments ago, Janet Yellen was asked if there is something out of place with the S&P hitting all time highs at a time when even she (not to mention numerous other Fed presidents) discuss froth in the bond markets. Her answer: no. Specifically, based on some "model" the Fed watches to get a "feeling" for valuations, she concluded the equity valuations are not out of historical norms. In other words, "no bubble here."

And here is what JPM had to say about that.

Don't worry about the surging food and gas prices you face each and every day... Janet Yellen says "it's just noise" and is actually "evolving exactly as they expected." It is this kind of mind-blowingly ignorant of the facts statement that has the central banks of the world losing more and more credibility (just take a look at the dot plot's 0.5 to 4.25% rate expectations for 2015). The following exchange between Yellen and Liesman is simply priceless in its ignorance.

While trying to avoid 'foot in mouth' disease, Janet Yellen begins another press conference. We wish her luck in explaining how great the new is that they are tapering and yet have slashed growth expectations for the year... key will be any comments on complacency (as VIX collapses to a 10 handle)...

Nine minutes after the release of the new 'most important' data of the year, The Wall Street Journal's Jon Hilsenrath has unleashed a briefer than normal 530 word summary of what "common knowledge" we should understand from Janet Yellen's latest statement. While the Fed is a little less optimistic about the outlook for economic growth in the short-term, Federal Reserve officials nudged up their projections for short-term interest rates in 2015 and 2016 in a modestly hawkish manner. Taken together, the Fed's new interest rate forecasts imply slightly more aggressive credit tightening plans taking shape in the next two years than previously thought.

Goldman Sachs, like most of the mainstream economists believes today's FOMC statement will likely be "broadly neutral" with no indication of sooner rate rises than expected (despite what we have noted as the timing not being better), some modest upgrades to the economic outlook (to keep the "everything's good and you don't need us anymore" meme alive), and continued taper at the same pace (with maybe some acknowledgemnet of the transitory pop in inflation). UBS, on the other side, suggests there is a chance of some FOMC surprises with Janet Yellen pulling a semi-Carney as Citi's Steven Englander has previously noted "the Fed needs more volatility in order to maintain its illusion of omnipotence."

We believe Jeffrey Gundlach, et al. are wrong regarding the 10-Year Bond yield staying below 2.80% over the second half of the year.

“Go and get educated, you weakly fools, learn to compete; it’s a tough world out there.” And with that push by the Knightly Elite, Americans by the millions have entered a path offering them skills or greater opportunity, instead of taking the alternate route to an almost guaranteed permanent welfare. In their obsequious tradition of creating self-serving opportunities and promoting waste, legislators have allowed the creation of a field of uncontrolled helter-skelter, unqualified schools (new or existing) offering shelter to mostly unemployed or unemployable men and women wearing student uniforms. Yet, as this throw-away part of society gets “educated” there are none-to-few jobs waiting for them. These “money advances,” appear as the only way to subsist. For now... we’ll just wait until this bubble bursts.

The recent decline in US yields appears to have run its course and given Citi's outlook for a better employment dynamic in the US, they expect yields to trend higher at this point. Citi's FX Technicals group remain of the bias that the normalization of labor markets (and the economy) will lead to a normalization in monetary policy and as a result significantly higher yields in the long run. Might the shock be that the Fed could be grudgingly tightening by late 2014/early 2015 (an equal time line to the 1994-2004 gap would suggest end November 2014) just as it was grudgingly easing by late 2007 despite being quite hawkish earlier that year? However, given the "treacherous market conditions" we suspect Citi's hoped-for normalization won't go quite as smoothly as The Fed hopes.