Despite the ratings agencies (Moody's Dec 5th and S&P Nov 22nd) seemingly premature raising of the outlook for the nation's sovereign credit rating (from negative to stable), economic hardship in Spain looks likely to continue as loan defaults surge and the unemployment rate remains the second highest in the EU.
The philosophical roots of Janet Yellen's economics voodoo, it seems, are in many ways even more appalling than the Bernanke paradigm (which in turn is based on Bernanke's erroneous interpretation of what caused the Great Depression, which he obtained in essence from Milton Friedman). The following excerpt perfectly encapsulates her philosophy (which is thoroughly Keynesian and downright scary): Fed Vice Chairman Yellen laid out what she called the 'Yale macroeconomics paradigm' in a speech to a reunion of the economics department in April 1999. "Will capitalist economies operate at full employment in the absence of routine intervention? Certainly not," said Yellen, then chairman of President Bill Clinton's Council of Economic Advisers. "Do policy makers have the knowledge and ability to improve macroeconomic outcomes rather than make matters worse? Yes," although there is "uncertainty with which to contend." She couldn't be more wrong if she tried. We cannot even call someone like that an 'economist', because the above is in our opinion an example of utter economic illiteracy.
How Fitch has not downgraded the U.S. already is a mystery to analysts looking at the U.S. fiscal position and the lack of political will to tackle it. It seems likely that significant political pressure is being put on credit ratings agencies regarding their credit rating of the U.S.
I like Professor Shiller and respect his work. Really, I do, but... Massive bubbles, the sort of the proportion of the 2008 crisis, are nigh impossible to miss if you can add single digits successfully and are able to keep your eyes open for a few minutes at a time. Yes, I truly do feel its that simple. I saw the property bubble over a year in advance, cashed out and came back in shorting - all for a very profitable round trip. Was I a genius soothsayer? Well, maybe in my own mind, but the reality of the situation is I was simply paying attention. Let's recap:
Despite stock (not bond) euphoria yesterday that a DC debt ceiling deal was sealed leading to the second largest risk ramp of 2013, last night was spent diffusing the excitement as one after another politician talked back the success of a "non-deal" that Obama rejected, at least according to the NYT. As a result, with both retail sales data and the PPI not being released (and the only data of note the always leaked UMichigan consumer confidence) markets will again be at the behest of developments on Capitol Hill, with some talk from Republicans suggesting a deal as early as today could be possible in an effort to reopen government on Monday. It is entirely possible that talks could continue over the weekend though, which would ensure a gappy open to Asian markets on Monday.
Only a week ago, the consensus among most mainstream economic analysts and even some alternative analysts was that a government shutdown was not going to happen. The Republicans would fold in the shadow of President Barack Obama’s overwhelming drive for socialization, spending would continue to grow unabated, and the debt ceiling would be vaulted yet again to feed the bureaucratic machine with more fiat. Today, there is no consensus, very few people continue to be so blithely self-assured and even the mainstream is beginning to wonder if a much bigger game is afoot here.
All the histrionics over the next Fed chairman, pardon chairwoman, choice are over. WSJ reports that Obama is set to announce Mr., pardon Mrs Janet Yellen as Bernanke's replacement tomorrow at 3 pm at the White House. "The nomination would conclude a long and unusually public debate about Mr. Obama's choice which started last June when he said that Ben Bernanke wouldn't be staying in the post after his term ends in January. Mr. Obama gave serious consideration to his former economic adviser, Lawrence Summers, who pulled out in September after facing resistance from Democrats in the Senate." However, while a Yellen announcement, largely priced in, in a normal environment would have been good for at least 10-20 S&P points, with the debt ceiling showdown the far more immediate concern, the choice of the Chairwoman may not be the buying catalyst that it would have otherwise been.
Five years later, while some are congratulating themselves on avoiding another depression, no one in Europe or the United States can claim that prosperity has returned. The financial system may be more stable than it was five years ago, but that is a low bar – back then, it was teetering on the edge of a precipice. Those in government and the financial sector who congratulate themselves on banks’ return to profitability and mild – though hard-won – regulatory improvements should focus on what still needs to be done. Some are pleased that the economy may have bottomed out. But, in any meaningful sense, an economy in which most people’s incomes are below their pre-2008 levels is still in recession. An The glass is, at most, only one-quarter full; for most people, it is three-quarters empty.
Still Laundering Terrorism and Drug Money ...
Are you ready for Janet Yellen? Wall Street wants her, the mainstream media wants her and it appears that her confirmation would be a slam dunk. She would be the first woman ever to chair the Federal Reserve, and her philosophy is that a little bit of inflation is actually good for an economy. She was reportedly the architect for many of the unprecedented monetary decisions that Ben Bernanke made during his tenure, and that has many on Wall Street and in the media very excited. Noting that we "already know that Yellen is on board with Bernanke's easy money policies", CNN recently even went so far as to publish a rabidly pro-Yellen article with this stunning headline: "Dear Mr. President: Name Yellen now!" But after watching what a disaster Bernanke has been, do we really want more of the same? It doesn't really matter whether she is a woman, a man, a giant lizard or a robot, the question is whether or not she is going to continue to take us down the path to ruin that Bernanke has taken us.
When we first posted this article a month ago, few paid attention as the entire world was gripped in Summer-mania. Now that Summers is out of the picture, and the monetary policy acumen of the former San Fran Fed president are under the spotlight, it is probably an opportune time to recall Janet Yellen's ability to foresee the future heading into the great financial crisis whose five year anniversary took place this weekend. Or rather lack thereof, because as the following excerpt from a 2010 FCIC hearing, noticed first by the NYT, demonstrates, if this is the best Fed head replacement we can do then we may as well fast forward to the Great Financial Crisis ver 2.0: “For my own part,” Ms. Yellen said, “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.”
Until six days before Lehman Brothers collapsed five years ago, the ratings agency Standard & Poor’s maintained the firm’s investment-grade rating of “A.” Moody’s waited even longer, downgrading Lehman one business day before it collapsed. How could reputable ratings agencies – and investment banks – misjudge things so badly? Regulators, bankers, and ratings agencies bear much of the blame for the crisis. But the near-meltdown was not so much a failure of capitalism as it was a failure of contemporary economic models’ understanding of the role and functioning of financial markets – and, more broadly, instability – in capitalist economies. Yet the mainstream of the economics profession insists that such mechanistic models retain validity.
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
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.