Janet Yellen

Guess what comes next in the numbered sequence: 30.0%, 60.0%, 66.666%? If you said 71.4%, or 2/5, which just happens to be Larry Summers' latest Fed Chairmanship odds according to Paddy Power, you are correct. Janet Yellen, who was once a 1/3 favorite has now plunged to just 7/4 or about 30% odds. And while Bill Gross' tweet certainly moved the market, perhaps a far greater concern to longs everywhere (of both bonds and stocks) is the realization that with every passing day Larry Summers gets closer to becoming the next Fed chairman.

Recently, Fox News interviewed a self-described beach bum named Jason Greenslate who was very open about the fact that he has no problem sponging off of all the rest of us.  When he was asked if he ever had any interest in actually getting a job, his response was "not whatsoever".  Instead, he says that his job is to "make sure the sun's up and the girls are out" and he would rather spend his days partying.  Of course every American should be free to live their own lives as they see fit, but the problem is that Jason Greenslate is using food stamps to help support his lifestyle. Of course the vast majority of those enrolled in the food stamp program are not like this. But there are also those such as Jason Greenslate that are openly abusing the system and making it more difficult for those that actually need the help to get it. Sadly, he is a product of the system that he was raised in.

“For my own part I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — I didn’t see any of that coming until it happened.” - Janet Yellen, 2010

The amusing news overnight was that following slightly better than expected Q2 GDP data out of Germany (0.7% vs 0.6% expected and up from 0.0%) and France (0.5% vs 0.2% expected and up from -0.2%), driven by consumer spending and industrial output, although investment dropped again, which meant that the Eurozone which posted a 0.3% growth in the quarter has "emerged" from its double dip recession. The most amusing thing is that on an annualized basis both Germany and France grew faster than the US in Q2. And they didn't even need to add iTunes song sales and underfunded liabilities to their GDP calculation - truly a miracle! Or perhaps to grow faster the US just needs higher taxes after all? Of course, with the all important loan creation to the private sector still at a record low, and with the ECB not injecting unsterilized credit, the European depression continues and this is merely an exercise in optics and an attempt to boost consumer confidence.

In the past the Jackson Hole conference very much revolved around the Fed chairman with the opening remarks often the top (and most market-moving) news from the junket. Despite an interesting docket of speakers and presenters from a central banking perspective (as BofAML details below), with no major Fed officials scheduled to speak (and only Kuroda turning up from the rest of the major world central banks), the markets are likely to pay a lot less attention to Jackson Hole than in the past.

• U.S. Regulator Subpoenas Banks Over Long Warehouse Queues (BBG)
• Apple Said to Prepare Holiday Refresh of IPhones to IPads (BBG)
• Fed's Yellen Says Stance on Banks Hardened (WSJ)
• Mexico opens up its energy sector (FT)
• Spin: Greek GDP marks gradual deceleration of recession (FT) ... spin aside, it dropped 4.6%, and in reality, probably over 10%
• Made-in-Canada Solution For BlackBerry Avoids Nortel Fate (BBG)
• America's Farm-Labor Pool Is Graying (WSJ)
• Video of 'lame' cattle stirs new concern over growth drugs (Reuters)
• Paulson Bid for Steinway Trumps Kohlberg Offer (WSJ)
• Egyptian government yet to decide on pro-Mursi vigils (Reuters)

In a somewhat stunning revelation from the masters-of-money-printing, the SF Fed (whose former head is none other than alleged Fed chairwoman frontrunner Janet Yellen) has found that "asset purchase programs like QE appear to have, at best, moderate effects on economic growth and inflation." One has to wonder why this sudden change of heart? Perhaps to pave the way for the less-than-enamored-with-QE Larry Summers' arrival... as we noted previously his views that “QE is less efficacious for the real economy than most people suppose."  Or maybe this is a way for Ms. Yellen, to ingratiate herself with the president by indirecly toning down expectations she would go "feral hog" on the CTRL-P button? In any case, markets appear a little concerned at this rising Fed canon of removing the liquidity spigot despiet the all-time-highs in stocks.

Despite an overnight surge in the Chinese markets, with the Shanghai Composite closing up 2.4% following reports that China will not only continue with its "liquidity tightening" operation by, paradoxically, cutting RRR for smaller banks, but launch a stimulus for several Chinese provinces and city governments "on the quiet" in the form of jumbo-sized bank loans, and GDP news in Japan that were so bad they were almost good (although not bad enough to close the Nikkei in the green) US futures continue to take on water following the second worst week of 2013 as the market now appears resigned to a Taper announcement in just over 5 weeks (as we have claimed since May). News in Europe continues to be bipolar, with the big picture confirming that only dark skies lie ahead following yesterday's news that a new Greek bailout is just around the corner, or rather just after the Merkel reelection (even though Kotthaus perpetuated the lies and said a second cut in Greek debt is not on the agenda - although maybe he is not lying: maybe only Greek deposits will be cut this time), offset by on the margin improvements in the economic headlines, even as credit creation remains not only non-existent but as the FT reports (one year after Zero Hedge), some €3.2 trillion in financial deleveraging is still on deck meaning an unprecedented contraction in all credit-driven aggregates (one of which of course is GDP).

While Janet Yellen's chances of becoming the next head of the Fed are plunging, those of Larry Summers are soaring, and it may be all due to a simple Freudian slip by the president. For those who missed, below is the full transcript of Obama's Friday's Q&A on the topic of who will succeed Ben Bernanke. Perhaps the most notable component: the president's pre-slipped reference to Janet Yellen's gender. Because if "he" occupies so little of Obama's attention, then what really are "his" chances of becoming the most important woman in the history of the world? To wit: "I have a range of outstanding candidates. You've mentioned two of them — Mr. Summers and Mr. Yellen — Ms. Yellen. And they're both terrific people."

Do you see what happens Larry when you float a strategic trial balloon or two? Your odds literally surge, at least according to Irish bookmaker Paddy Power, which in the absence of InTrade has become the only market polling venue where pundits put money where their mouth is (as opposed to countless clueless Op-Eds written by every self-proclaimed Fed expert in existence). Where two weeks ago, on July 24, Larry "the hawk" Summers was a long 20% odds challenger to Janet Yellen, who was a solid 75% favorite to become the next Fed chair, since then Yellen's odds have crumbled to just 33% currently, while Summers has exploded higher and after peaking at 60% two days ago has climbed even higher, and is a 66.6% (appropriately enough) favorite currently. Time for the perma-Doves to panic yet?

Two weeks ago, Larry Summers was a long-shot 4/1 odds of becoming the next Fed Chair while Janet Yellen (at 1/3) was a 75% probable shoe-in. What a difference an onslaught of PR makes... According to PaddyPower's now re-started odds for the next chair(wo)man, the 'smart' money has piled into Larry Summers shifting his odds to a remarkable 7/4 (or triple the probability of 2 weeks ago at 60%). Yellen has dropped to a 36% probability (halving her likelihood) and Roger Ferguson has dropped off the front-runners sheet. Is the market jittery as the 'conscientious objecter to QE' rises in certainty.

Just a few days ago on July 27th President Barack Obama said that the next Fed head had to consider average Americans when setting monetary policy. If only that were true.

• Low Wages Work Against Jobs Optimism (WSJ)
• Tourre’s Junior Staff Defense Seen Leading to Trial Loss (BBG)
• Russia gives Snowden asylum, Obama-Putin summit in doubt (Reuters)
• Fortress to Blackstone Say Now Is Time to Sell on Surge (BBG)
• Brazil backs IMF aid for Greece and recalls representative (FT), previously Brazil refused to back new IMF aid for Greece, says billions at risk (Reuters)
• Google unveils latest challenger to iPhone (FT)
• Swaps Probe Finds Banks Manipulated Rate at Expense of Retirees (BBG)
• Academics square up in fight for Fed (FT)
• Potash Turmoil Threatens England’s First Mine in Forty Years (BBG)
• Dell Deal Close but Not Final (WSJ)

Much has been made this weekend of the WSJ story that Janet Yellen (and her dovish counterparts) have been so much more accurate as forecasters than the hawks on the FOMC in recent years. This along with pitting her against the asinine Larry Summers appears to create a shoe-in for 'damn-it-Janet' to take the helm as the new Maestro (or mistress?). But, as CNBC's Rick Santelli points out, it is ludicrous to proclaim a 'winner' based on inflation predictions, as transmission channels of the endless money-printing are jammed (and besides the models that predicted economic growth and new hiring from this 'spiking the punchbowl' have failed dismally). Simply put, Santelli analogizes, "the Cubs haven't won the World Series in a century, but if I poll all of the players/managers and see which predicted we wouldn't win the World Series; and whoever guessed that right, we will make them the manager, does that guarantee me that next year we're going to win the World Series?" The bottom-line, unless GDP shows sustainable growth, the rest is just a "silly discussion."