Janet Yellen

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.

With the world's suckers investors (CEOs, politicians, and peons alike) all hanging on every word the man-behind-the-curtain has to say on Friday, Stone & McCarthy has crafted an excellent 'what-if' of key takeaways and interpretations ahead of Friday's Jackson Hole Symposium speech by Bernanke. Will Draghi toe the line? Will China be pissed? and what rhymes with J-Hole? On balance, we think Bernanke will save the policy directives for the FOMC meeting (potentially disappointing the market) while highlighting that the Committee is vigilant and flexible, and ready to act.

The lunatics are running the asylum. This is the only conclusion one can come to when considering the nonchalance with which what was once considered an extraordinary policy with a firm 'exit' in mind is now propagated as a perfectly normal 'tool' to be employed at the drop of a hat. We refer of course to so-called 'quantitative easing' (QE), which really is a euphemism for money printing. Apart from his sole focus on short term outcomes, an important point that seems not be considered by the FOMC's Rosengren this week is the question of what should happen if the 'open-ended' QE policy were to fail to achieve its stated goals. He seems to assume that it will succeed in lowering unemployment and creating 'economic growth' as a matter of course. It goes without saying that money printing cannot create a single molecule of real wealth. If it could, then Zimbabwe wouldn't be a basket case, but a Utopia of riches. We must infer from Rosengren's idea of implementing open-ended QE until  certain benchmarks in terms of unemployment and 'growth' are achieved, that in case they remain elusive, extraordinary rates of money printing would simply continue until the underlying monetary system breaks down.

Fed governors regurgitate it time and again to rationalize their policies.

Less than an hour ago Zero Hedge was happy to point out the glaringly obvious.

Bernanke speech will have nothing in it

— zerohedge (@zerohedge) June 7, 2012

Shortly thereafter, Bernanke confirmed it. Now it is Wall Street's turn to join in.

Central bank gold demand remains robust as central banks continue to diversify out of the euro and the dollar. Further central bank demand is confirmed in the news this morning that Kazakhstan plans to raise the share of gold in its international reserves from 12% to 15%. So announced central bank Deputy Chairman Bisengaly Tadzhiyakov to reporters today in the capital, Astana. “We’ve already signed contracts for 22 tons,” Tadzhiyakov said. Bloomberg report that immediate-delivery gold was little changed at $1.620.41 an ounce at 10:50 a.m. in Moscow, valuing 22 metric tons of gold at about $1.2 billion. “The bank is ready to buy when suppliers are ready to sell,” Tadzhiyakov said. Kazakhstan said yesterday it will cut its holdings in the euro by a sixth. It was reported in the Reuters Global Gold Forum that the central bank buys all the gold produced in Kazakhstan and owned 98.19T at the end of April, according to the IMF's most recent international finance statistics report. Meanwhile, supply issues remain and South African gold production continues to plummet. South African gold production fell 12.8% in April from a year earlier, Juan -Pierre Terblanche, a spokesman for Statistics South Africa, told Bloomberg.

All you need to read.

That former San Fran Fed chairman Janet Yellen would demand more easing is no surprise: she used to do it all the time. That Fed Vice Chairman, and Bernanke's second in command, Janet Yellen just hinted that she is "convinced that scope remains for the FOMC to provide further policy accommodation either through its forward guidance or through additional balance-sheet actions", and that "while my modal outlook calls for only a gradual reduction in labor market slack and a stable pace of inflation near the FOMC's longer-run objective of 2 percent, I see substantial risks to this outlook, particularly to the downside" is certainly very notable, and confirms everyone's worst dream (or greatest hope assuming they have a Schwab trading platform or Bloomberg terminal) - more cue-EEE is coming to town.

These people will say anything!

Last night it was uber-dove Janet Yellen, today it is uberer-dove, former Goldmanite (what is it about Goldman central bankers and easing: Dudley unleashing QE2 in 2010, Draghi unleashing QE LTRO in Europe?) Bill Dudley joining the fray and saying QE is pretty much on the table. Of course, the only one that matters is Benny, and he will complete the doves on parade tomorrow, when he shows that all the hawkish rhetoric recently has been for naught. Cutting straight to the chase from just released Dudley comments:"we cannot lose sight of the fact that the economy still faces significant headwinds and that there are some meaningful downside risks... To sum up, the incoming data on the U.S. economy has been a bit more upbeat of late, suggesting that the recovery may be getting better established.  But, while these developments are certainly encouraging, it is far too soon to conclude that we are out of the woods in terms of generating a strong, sustainable recovery.  On the inflation front, the year-over-year rate of consumer price inflation has slowed in recent months, and despite the recent rise of gasoline prices, we expect inflation to moderate further in 2012." Translate: NEW QE is but a CTRL-P keystroke away now that all the inflation the Fed usually ignores continues to be ignored.

• Fed's No. 2 Strongly Backs Low-Rate Policy (Hilsenrath)
• World Bank Cuts China 2012 Growth Outlook on Exports  (Bloomberg)
• BlackRock's Street Shortcut: Big Banks Would Be Bypassed With Bond Platform; 'Not Going to Cannibalize' (WSJ)
• George Soros - Europe’s Future is Not Up to The Bundesbank (FT)
• Fed May Have Aggravated Income Inequality, El-Erian Says(Bloomberg)
• Shirakawa Pledges Japan Easing Amid Political Pressure (Bloomberg)
• Spain’s Debt Struggle Opens Door to Sarkozy Campaign Message (Bloomberg)
• Iran Woos Oil Buyers With Easy Credit (FT)
• Syria Pledges to Observe Ceasefire (FT)

Last week we had the Fed's hawks line up one after another telling us how no more QE would ever happen. We ignored them because they are simply the bad cops to the Fed's good cop doves. Sure enough, here comes Bernanke's right hand man, or in this case woman, hinting that one can forget everything the hawkish stance, and that ZIRP may last not until 2014 but 2015! Which, by the way, is to be expected: since ZIRP can never expire, it will always be rolled to T+3 years, as the short end will never be allowed to rise, until the Fed has enough FRNs in circulation to absorb the surge in rates without crushing the principal, as explained yesterday.

First we had FRBNY Dove Bill Dudley talking up the Goldman party line that QE3 may, just may, be necessary (recall Goldman initially asked for $2 trillion in QE), and now the dove from the west coast makes news as San Fran Fed (also known as the Captain Obvious academy) president Janet Yellen basically says that rising commodity prices don't warrant policy shift. And by policy shift she means a change to the current easing regime. Some other dovish statements: "it would be difficult to get a sustained increase in inflation as long as growth in nominal wages remains low" which is wrong - how many billions do American consumers "save" by not paying their mortgages; "structural explanations cannot account for bulk of rise in unemployment during the recessions" ... so why do we need economic "explanations"? "structural explanations cannot account for bulk of rise in unemployment during the recessions" - yup: Captain Obvious class 101; "long-term inflation expectations remain well-anchored despite jump in short term expectations" - anchored to what - the Rudy von Havenstein inflation projection wall chart?  "decline in jobless rate reflects in part drop in labor force participation" - advance topics In Captain Obviousness; "real consumer spending slowed around turn of the year after brisk gains in autumn, consumer sentiment weaker in March" - but CNBC just spent all of last week telling us how strong the consumer was in March; and most importantly: "accommodative monetary policy stance still appropriate because unemployment too high, underlying inflation too low" and "inflation effects from higher commodity prices likely to be transitory but must watch inflation expectations" uhh, what happened to well-anchored? To rephrase: the QE lunacy will continue until morale (and hyperinflation) improves.