Janet Yellen

The Bitcoin phenomenon has now reached the mainstream media where it met with a reception that ranged from sceptical to outright hostile. The recent volatility in the price of bitcoins and the issues surrounding Bitcoin-exchange Mt. Gox have led to additional negative publicity. It is clear that on a conceptual level, Bitcoin has much more in common with a gold and silver as monetary assets than with state fiat money. The supply of gold, silver and Bitcoin, is not under the control of any issuing authority. It is money of no authority – and this is precisely why such assets were chosen as money for thousands of years. Gold, silver and Bitcoin do not require trust and faith in a powerful and privileged institution, such as a central bank bureaucracy. Under a gold standard you have to trust Mother Nature and the spontaneous market order that employs gold as money. Under Bitcoin you have to trust the algorithm and the spontaneous market order that employs bitcoins as money (if the public so chooses). Under the fiat money system you have to trust Ben Bernanke, Janet Yellen, and their hordes of economics PhDs and statisticians.

• Yuan suffers biggest weekly loss as PBOC punishes speculators (Reuters)
• Euro Gains as Bonds Decline With Stocks on Inflation Data (BBG)
• Biggest Sovereign Fund Forced to Sell Stocks as Mandate Breached (BBG)
• Because we don't already have enough fried foods.. (Reuters)
• Putin: Russia to Consider Aid to Ukraine (AP)
• Wall Street Hates JPMorgan Fee for $1 Trillion Junk Loans (BBG)
• Yellen Sticks to Plan Amid Weather Doubts (WSJ)
• U.S. Retail Chains See First Profit Decline Since Recession (BBG)

Missed today's follow up Janet Yellen testimony before the Senate Banking Committee? Don't worry: you didn't miss much, all the bases were covered including winter weather during the winter, the Fed's complete cluelessness about what "full employment" means (because the definition changed thoroughly from December 2012 when it was 6.5%), what the "quantitative" definition of quantitive easing is (Yellen has no idea), why the Fed isn't subject to a haircut on its MBS holdings while all the other banks have to suffer under the intolerable Basel III 15% haircut (something to do with illiquidity of MBS, and specifically - something to do with the fact that the Fed has soaked up more than all net issuance of MBS in the past year, but don't worry - the Fed is on top of it), and, of course, Bitcoin. For everything else, here is Goldman's post-mortem of Yellen's Day Two testimony.

When Arthur Levitt's SEC adopted Rule 2a-7 in 1998, it handed the TBTF banks and GSEs a mortgage monopoly on a silver platter.  

Apparently all it takes to kick the world out of a secular recession and back into growth mode, is for several dozen finance ministers and central bankers to sit down and sign on the dotted line, agreeing it has to be done. That is the take home message from the just concluded latest G-20 meeting in Syndey, where said leaders agreed that it is time to finally grow the world economy by 2% over the next 5 years. "We are putting a number to it for the first time -- putting a real number to what we are trying to achieve," Hockey told a news conference. "We want to add over $2 trillion more in economic activity and tens of millions of new jobs." There is only one problem: the G-20 has absolutely no idea how to actually achieve its goal of boosting global output by more than the world's eighth largest economy Russia produces in a year. Nor does it have any measures to prod and punish any laggards from this most grand of central planning schemes.

Most people in the world believe you get what you pay for. Furthermore, the dream of a meritocratic society remains alive and well in the corporate world. As the following chart shows, however, the US (and perhaps even the world) better hope that they don't get what they are paying for...

Last week, Federal Reserve Chairman Janet Yellen testified before Congress for the first time since replacing Ben Bernanke at the beginning of the month. Her testimony confirmed what many of us suspected, that interventionist Keynesian policies at the Federal Reserve are well-entrenched and far from over. Isn't it amazing that the same people who failed to see the real estate bubble developing, the same people who were so confident about economic recovery that they were talking about “green shoots” five years ago, the same people who have presided over the continued destruction of the dollar's purchasing power never suffer any repercussions for the failures they have caused?

“Guidance” is the new organizing credo of US financial life with Janet Yellen officially installed as the new Wizard of Oz at the Federal Reserve. Guidance refers to periodic cryptic utterances made by the Wizard in staged appearances before congress or in the “minutes” (i.e. transcribed notes) from meetings of the Fed’s Open Market Committee. The cryptic utterances don’t necessarily have any bearing on reality, but are issued with the hope that they will be mistaken for it, especially by managers in the financial markets where assets are priced and traded. 

When it comes to complex systems and unintended consequences, the key phrase is "be careful what you wish for." A lot of people are remarkably certain that their understanding of how systems will respond in the future is correct. Alan Greenspan was certain there was no housing bubble in 2007, for example (or he did a great job acting certain). Some are certain the U.S. stock market is going to crash this year, while others are equally certain that stocks will continue lofting higher on central bank tailwinds. Being wrong about the way systems responded in the past doesn't seem to deter people from being certain about the future. Complex systems don't act in the linear way our minds tend to work.

We all knew that cultures were different and that we all had a unique way of doing things that run our daily lives. In Europe they tell the banks that they will die if they are weak (apparently, after the statement issued by Danièle Nouy, overseer of the Singe Supervisory Mechanism).

On Tuesday, new Federal Reserve Chairman Janet Yellen went before Congress and confidently declared that "the economic recovery gained greater traction in the second half of last year" and that "substantial progress has been made in restoring the economy to health".  This resulted in glowing headlines throughout the mainstream media such as this one from USA Today: "Yellen: Economy is improving at moderate pace".  Sadly, tens of millions of Americans are going to believe what the mainstream media is telling them.  But it isn't the truth.  As you will see below, there are all sorts of signs that the economy is taking a turn for the worse.

"Take a long, hard look, Janet," warns Grant Williams, "the landscape over which you cast your eyes when you accepted the poisoned chalice prestigious role of Fed Chair changed last week." Just two days before you were confirmed in a rather lovely ceremony, in an interview in Mumbai, Raghuram Rajan (one-time Chief Economist at the IMF and current Governor of the Reserve Bank of India) rather UNceremoniously dropped something of a bombshell that went largely unreported (perish the thought, in this era of dogged journalism). The standout feature of central bank policy over the last five years has been the spirit of cooperation... then came the taper. It is every man for himself now, and the Fed will screw them all. The splintering of central bank policy is just the beginning. This is the end of the innocence.

2014 has been an unusual year so far. The worst start for stocks in decades stunned many but has been saved by the best rally in a few years' asset-gatherers proclaim it was the dip to be bought but volume never came back to buy that dip (despite its exuberant surge). So where is all the volume in 2014? Nanex has the answer... investors have been geting 'high' by weeding-out OTC stocks...

• Anti-Euro Party’s Le Pen Gains Supporters, French Poll Shows (BBG)
• Carney Renews BOE Low-Rate Pledge to Fight Slack in Economy (BBG)
• Bank of England hints at 2015 rate rise (Reuters)
• ECB bond-buying intact and ready after court decision-Coeure (Reuters)
• Canada scraps millionaire visa scheme, dumps 46,000 Chinese applications (SCMP)
• Scrap this then? Vancouver facing an influx of 45,000 more rich Chinese (SCMP)
• China's January Exports Power Higher, Up 10.6% (WSJ) ... and nobody believes the number
• Emerging-Market Shakeout Putting Reserves Into Focus (BBG)
• Wall Street's most eligible banker Fleming waits for suitor (Reuters)
• Kazakh Devaluation Shows Currency War Stirring as Ruble Dips (BBG)

In less than 30-seconds, the always eloquent founder of the Interest Rate Observer 'translates' Yellen's Fed speak into reality:-

"What we mean to do is continue to nationalize the yield curve... and we would like to enlist the stock market in a program of wealth creation for the security holders of America."

The Fed has manipulated interest rates for 100 years but Grant adds, "never - until now - has it manipulated the stock market as if it were a lever of public policy." His discussion ranges from the bubble in Biotech to holding Gold (which he describes as "nature's bitcoin") because it is "the reciprocal of faith in Central Banks."