Janet Yellen

When it comes to the decisions made by a group of academics behind closed doors to keep the stock market in nominal terms up at all costs (nevermind such trivial matters as the jobless rate, inflation, i.e., those things they are tasked with), one would think they are based on the bubblicious ramblings of one Ben Bernanke, or Charles Evans, or even one Janet Yellen. One would be very wrong. As it turns out the real decisions that determine the value of paper money (laughable as it is), and thus billions of people in the world, are all in the virtual hands of the following three entities: Ferbus, Edo and Sigma. These are "computer-modeling programs the central bank uses to make predictions about how various policies and events will play out across the economy....The Fed's main economic model, launched in 1995, is called FRB/US, pronounced "Ferbus." It uses hundreds of different mathematical equations to describe how the economy works. " Brilliant. And as Hilsenrath himself adds further on, "The models are deeply flawed. They failed to foresee the financial crisis in 2008 and have tended to overestimate the strength of the economy for several years." Hilsenrath then goes on to pose a very rhetorical question: "Could they fail the Fed again?" The answer is painfully obvious to anyone who has been on the receiving end of the Fed's endless attempts to blow a credit bubble always and forever. And just in case it is not obvious, let's just remind everyone that "subprime is contained."

Moments ago, the San Fran Fed, best known for spending taxpayer money to conduct such indepth analyses on topics including whether water is wet, and whether the Fed creates bubbles, has just released its most recent 'FedViews' economic outlook in which we read that "we expect growth to steadily accelerate in 2013 as the economy bounces back from harsh weather conditions and as the underlying expansion of consumer spending reemerges. We expect growth to register 1.7% in 2012 and 2.6% in 2013." This would be great if only a two minute Google search did not expose some of the San Fran Fed's previous attempts at forecasting the future, such as this one from October 14, 2010, in which the crack experts said that "we currently project that real GDP will  expand around 2½% in 2010, below its potential of about 3% annually. We expect the recovery to gain momentum over the course of next year and that real GDP growth for 2011 will reach about 3½%." Final 2011 GDP growth: 2.4%.... or this one from June 9, 2011, in which we learned that "growth should rebound in the third quarter. We expect GDP to expand at an annualized 3½% rate in the second half of the year and to continue to strengthen throughout 2012." Final 2012 GDP growth: 1.8%. Or just 50% off. Applying the same undershoot error rate to the Fed's 2013 forecast means that real economic growth next year will be at best 1.3%. And that's with a fresh $1 trillion in monetary injections from the Fed.

Judging by how the SkyNet formerly known as "the market" has been trading in the past three weeks (and years), one may get the impression the "smart money", hiding behind Bloomberg terminals for 9 hours each day, has gone full lunatic retard. Yet not even said Bloomberg terminals users are completely insane, as confirmed by a just released poll of Bloomberg Professional users, who were asked on their opinion for the two next probably Bernanke replacements: one Larry Summers, best known, together with Robert Rubin, Alan Greenspan and everyone in Congress and Senate over the past 30 years, for destroying the US economy, as well as one Janet Yellen, currently vice chair of the Fed, and almost certain replacement for the Chairsatan once his term expires in early 2014. The verdict: nay to both, but a resounding hell no to the man who destroyed the US banking system, then crushed the Harvard endowment, and finally brought the US consumer and economy to a state of complete ruin.

Stopping or scaling back would be "counterproductive" for the economy.

You've probably noticed the cookie-cutter format of most financial media "news": a few key "buzz words" (fiscal cliff, Bush tax cuts, etc.) are inserted into conventional contexts, and this is passed off as either "reporting" or "commentary" depending on the number of pundits sourced. Correspondent Frank M. kindly passed along a template that is "officially deny its existence" secret within the mainstream media. With this template, you could launch your own financial media channel, ready to compete with the big boys. Heck, you could hire some cheap overseas labor to make a few Skype calls to "the usual suspects," for-hire academics, hedge fund gurus, etc. and actually attribute the fluff to a real person.

For the third day in a row, gold and silver are being monkey-hammered at the open of the US equity market day session. Whether this is margin calls mounting or a dedicated 'hedger of client portfolios' is unclear, but fool me once - shame on you, fool me twice - shame on me, fool me thrice - ask Janet Yellen...

With impeccable timing

• Don't jump to conclusions over general, Pentagon chief says (Reuters)
• Bad times for generals: Pentagon demotes 4-star General Ward (Reuters)
• Investors Pay to Lend Germany Money (WSJ)
• Noda will no longer be watching... watching: Japan PM honors pledge with December 16 vote date, to lose job (Reuters)
• New China leadership takes shape (FT)
• Hispanic Workers Lack Education as Numbers Grow in U.S. (Bloomberg)
• Quest for EU single bank supervisor stumbles (FT)
• Anti-austerity strikes sweep Europe (Reuters)
• Amazon faces new obstacles in fight for holiday dollars (Reuters)
• SEC Expands Knight Probe (WSJ)
• Singapore’s Casinos Lose Luster as Gaming Revenue Decline (Bloomberg)
• Amid Petraeus sex scandal, Air Force to release abuse report (Reuters)
• Geithner’s Money Fund Overhaul Push Sparks New Opposition (Bloomberg)

If May Day is when Europe celebrates labor and jobs (if any), November 14 is its opposite, bizarro cousin as today Europe wakes up to a dead(er than usual) economy. The reason: virtually every European country is on strike. From BusinessWeek: "Spanish workers staged a second general strike this year as unions across Europe prepared the biggest coordinated protests yet against budget cuts that policy makers say are needed to end the region’s debt crisis. In Spain, unions said most auto and metal workers joined the strike, even as power demand was just 13 percent below usual. One of Portugal’s two biggest labor groups also called a strike, partial walkouts are planned in Greece and Italy, and French unions are urging workers to join protest marches. “This is a strike against the suicidal economic policies of the government,” Ignacio Fernandez Toxo, head of Spain’s CCOO union, told supporters late yesterday." In other words, Europe's economy which is already doing swimmingly, is about to see 1/60th of its Q4 GDP removed as virtually no economic goods or services are produced today.

If the Fiscal Cliff negotiations are supposed to result in a bipartisan compromise, it is safe that the initial shots fired so far are about as extreme as can possibly be. As per our previous assessment of the status quo, with the GOP firmly against any tax hike, many were expecting the first olive branch to come from the generous victor - Barack Obama. Yet on the contrary, the WSJ reports, Obama's gambit will be to ask for double what the preliminary negotiations from the "debt deficit" summer of 2011 indicated would be the Democrats demand for tax revenue increase. To wit: "President Barack Obama will begin budget negotiations with congressional leaders Friday by calling for $1.6 trillion in additional tax revenue over the next decade, far more than Republicans are likely to accept and double the $800 billion discussed in talks with GOP leaders during the summer of 2011. Mr. Obama, in a meeting Tuesday with union leaders and other liberal activists, also pledged to hang tough in seeking tax increases on wealthy Americans." Granted, there was a tiny conciliation loophole still open, after he made no specific commitment to leave unscathed domestic programs such as Medicare, yet this is one program that the GOP will likely not find much solace in cutting. In other words, all the preliminary talk of one party being open to this or that, was, naturally, just that, with a whole lot of theatrics, politics and teleprompting thrown into the mix. The one hope is that the initial demands are so ludicrous on both sides, that some leeway may be seen as a victory by a given party's constituents. Yet that is unlikely: as we have noted on many occasions in the past, any compromise will result in swift condemnation in a congress that has never been as more polarized in history.

There was a time when bears looked on with dread as a Fed Permadove and vice chair Janet Yellen cleared her throat in advance of delivering prepared remarks, knowing well the algos would go full liftathon retard as soon as the flashing red highlights hit the screen. Well, Yellen did just that in a speech titled "Revolution and Evolution in Central Bank Communications" (link here). Some of the highlights:

• YELLEN SAYS FED SHOULD LINK LOW-RATE OUTLOOK TO ECONOMIC GOALS
• YELLEN FAVORS ELIMINATING CALENDAR-DATE COMMITMENT TO EASING
• YELLEN WOULD LINK STIMULUS EXIT TO INFLATION, JOBS THRESHOLDS
• YELLEN SAYS 2% INFLATION SHOULDN'T BE CONSIDERED A CEILING
• YELLEN SAYS OPTIMAL POLICY FOR BALANCED APPROACH INVOLVES KEEPING ZIRP UNTIL EARLY 2016

And... nothing. In fact, worse than nothing - selloff! We have now gotten to a point where the Fed implicitly promising it may keep ZIRP until even longer than previously promised, or 2016, results in a coordinated dump.

The very same problems that the world faced on November 5, 2012 remain in place. And we now know that those in power (Bernanke and Draghi) favor money printing over everything else. So the cost of living/ inflation will continue to rise and the world will lurch ever closer to the great debt implosion that will eventually take down the financial system.

While the theater of the presidential election hits peak season, and InTrade odds for this candidate or that are approaching flash crash territory, the one person who truly runs not only the US, but the entire "developed" world, Ben Bernanke, is going nowhere. At least not until January 2014. At which point he may be going somewhere - retirement. Reuters cites the NYT: "U.S. Federal Reserve Chairman Ben Bernanke has told close friends he probably will not stand for a third term at the central bank even if President Barack Obama wins the November 6 election, the New York Times reported." In other words: the republican Fed Chairman who mysteriously became a Democrat president's bestest friend (and has been publicly threatened by every other GOP candidate, including Romney, although that would be merely to replace him with Bill Dudley, not Glenn Hubbard)  that $4 trillion that the Fed will have in assets at the time of Ben's departure, and $5 trillion at December 31, 2014, just became someone else's problem. Good luck to that someone else unwinding a Fed balance sheet which as we explained previously, will at one point in the next 2 years hold well over half of the marketable US Treasury debt inventory. How the sale of this inventory will happen in a time of spiking rates (because that's what the Fed wants - inflation) is literally anyone's guess, because in practice it will never happen.

• U.S. Military Is Sent to Jordan to Help With Crisis in Syria (NYT)
• IMF Weighing New Loans for Europe (WSJ)
• Romney Targets Obama Voters (WSJ)
• China’s Central Banker Won’t Attend IMF Meeting Amid Island Spat (Bloomberg)
• Japan Calls China PBOC Chief Skipping IMF Meeting ‘Regrettable’ (Bloomberg)
• German media bristles at hostile Greek reception for Merkel (Reuters)
• The End Might Be Near for Opel (Spiegel)
• IMF sounds alarm on Japanese banks (FT)
• Cash Tap Stays Dry for EU Banks (WSJ)
• Goldman in Push On Volcker Limits (WSJ)
• IMF Vinals: Further Policy Efforts Needed to Gain Lasting Stability (WSJ)
• King signals inflation not primary focus (FT)

Usually on semi-US holidays such as today, when bonds are closed but equities left to the whims of vacuum tubes, equities do their mysterious ramp and never look back. So far today, however, this has failed to happen with futures at lows, driven by a noticeably weak EURUSD, which has traded down nearly 100 pips from the Friday late day ramp close, currently at 1.2940. It is unclear what has spooked the Euro so far, although all signs point to, as they did 2 months ago, the Spanish lack of willingness to throw in the towel and demand a bailout, thus easing conditions for everyone else if not for Spain PM Rajoy. Today's main event will be European finance ministers meeting in Luxembourg to discuss the recent Spanish economic transformation efforts as well as an attempt to accelerate banking cooperation and implement a banking regulator - something which is needed for the ESM to monetize bank debt, and something which Germany has been firmly against from day one. Additionally, a day ahead of Merkel's visit to German (where she will be protected by 6-7,000 cops), the ministers are likely to make a positive statement on Greece’s progress toward austerity targets, according to European viceroy Olli Rehn said. In other overnight news, German Industrial Production saw a -0.5% decline, which was modestly better than the -0.6% expected. Over in Asia, China reopened from its 1 week Golden Week hibernation with the SHCOMP down -0.56% to 20.76.42 following a small bounce in the China HSBC Services PMI to 54.3 from 52 in August, and with average house prices rising for a 4th month in a row, and even more repo operations by the PBOC, the result is that the market's ungrounded hopium for an immediate PBOC liquidity injection was taken away pushing regional markets lower.