Janet Yellen

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.

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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."

Hopes that Kuroda would say something substantial, material and beneficial to the "three arrow" wealth effect (about Japan's sales tax) last night were promptly dashed when the BOJ head came, spoke, and went, with the USDJPY sliding to a new monthly low, which in turn saw the Nikkei tumble another nearly 500 points. China didn't help either, where the Shanghai Composite also closed below 2000 wiping out a few weeks of gains on artificial hopes that the PBOC would step in with a bailout package, as attention turned to the reported announcement that an update of local government debt could double the size of China's non-performing loans, and what's worse, that the PBOC was ok with that. Asian negativity was offset by the European open, where fundamentals are irrelevant (especially on the one year anniversary of Draghi FX Advisors LLC "whatever it takes to buy the EURUSD" speech) and renewed M&A sentiment buoyed algos to generate enough buying momentum to send more momentum algos buying and so on. As for the US, futures are indicating weakness for the third day in a row but hardly anyone is fooled following two consecutive days of green closes on melt ups "from the lows": expect another rerun of the now traditional Friday ramp, where a 150 DJIA loss was wiped out during the day for a pre-programmed just green closing print.

Dis-passionate discussion of next week's events and data, placed within a somewhat larger context.  

Based on media reports over the past few weeks, there are two clear front-runners in the competition to be named Ben Bernanke’s successor as Fed chairman. Current Vice Chair Janet Yellen sits in one corner, former Treasury Secretary and National Economic Council (NEC) Director Larry Summers in the other corner, and pundits are actively placing their bets. Yellen is "soft-spoken, even-tempered, 100% mainstream academic economist who boils the world down to simplistic concepts," so similarities between Bernanke and Yellen are far stronger than the differences. A hand off from one to the other would be about as eventful as a rainy day in Seattle. Compared to Yellen, Summers has a longer history as a heavyweight policymaker but as Charles Ferguson wrote, “rarely has one individual embodied so much of what is wrong with economics, with academe, and indeed with the American economy." And that’s what it seems to be coming down to: a choice between a yawn and a hiss. Why not appoint someone with a track record of getting things right, you ask? Well, that would require a culture of accountability in the White House. Does anyone remember when we last had that?

For the second consecutive day futures have drifted lower following a drubbing in the Nikkei which was down nearly 3% to just above 14K (time to start talking about the failure of Abenomics again despite National CPI posting the first positive print of 0.2% in forever and rising at the fastest pace in 5 years) and the Shanghai Composite which dropped to just above 2000 once again, after PBOC governor Zhou saying that China has big economic downward pressure and further reiterated prudent monetary policy will be pursued. This is despite Hilsenrath's latest puff piece which pushed the market into the green in yesterday's last hour of trading and despite initial optimism which saw stocks open higher following forecast-beating EU earnings gradually easing and heading into the North American open stocks are now little changed. It may be up to the WSJ mouhtpiece to provide today's 3pm catalyst to BTFATH, or else it will be up to the circular and HFT-early released UMichigan confidence index to surge/plunge in order to push stocks on any red flashing news is good news.

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At precisely 4 am Eastern two opposite things happened: the German IFO Business Climate for July printed at a better than expected 106.2 vs 105.9 in June and higher than the 106.1 consensus: news which would have been EURUSD positive. And yet the EUR tumbled. Why? Because at the same time the ECB provided an update to the chart that "keeps Mario Draghi up at night" as we reminded readers yesterday - the ECB's all important credit creation update in the form of the M3, which not only missed expectations (of +3%) but declined from 2.9% to 2.3%. But more importantly, ECB lending to private sector shrank for the 14th consecutive month in June, and slid to a new record low 1.6% in June, down from a 1.1% in May.

While hardly a surprise, following recent speculative punditry (which failed miserably in forecasting Mark Carney as the next BOE head, something Zero Hedge predicted half a year ahead of the event due to one simple variable - he is from Goldman) and numerous trial balloons on Bernanke's successor coming hot and heavy from every direction, it was time for the Fed's own mouthpiece, Jon Hilsenrath, to speak, and bring back much needed drama and confusion.

Federal Reserve Chairman Bernanke's term expires January 31, 2014. While his continuation as Fed chair cannot be ruled out, he has given no public indications that he plans to seek another term and most market participants - as well as many members of Congress in last week's Humphrey-Hawkins hearings - seem to believe he will retire from public service early next year. As Goldman notes, the announcement of the next Chair of the Federal Reserve seems most likely to come in October, though nominations for Fed Chair have been announced as early as five months before the current term expires and as late as less than a month before expiration. There does not appear to be much risk to the Senate's ultimate confirmation of whomever the President chooses, though the Fed nominations have become more politically controversial over the last few years, which is likely to lengthen the confirmation process. Following previous confirmations, financial market volatility has typically increased slightly, though whether this occurs following the upcoming transition will of course depend on who is nominated.