In less than 30-seconds, the always eloquent founder of the Interest Rate Observer 'translates' Yellen's Fed speak into reality:-
"What we mean to do is continue to nationalize the yield curve... and we would like to enlist the stock market in a program of wealth creation for the security holders of America."
The Fed has manipulated interest rates for 100 years but Grant adds, "never - until now - has it manipulated the stock market as if it were a lever of public policy." His discussion ranges from the bubble in Biotech to holding Gold (which he describes as "nature's bitcoin") because it is "the reciprocal of faith in Central Banks."
For only the 5th time in the last 25 years, the S&P closed up over 1% on Humphrey-Hawkins testimony day. Today's screamfest seems all about a growing "common knowledge" that the economy is weaker than everyone hoped and Yellen will untaper as soon as possible (despite her saying the absolute opposite of that). Stocks surged (S&P's best 4-day run in over 2 years); Credit spreads collapsed. Gold soared to 3-month highs (+5% from Taper). The USD roller-coastered notably on JPY & EUR weakness. While bonds sold off (not un-tapery) the move was very modest (and bond yields have dislocated notably from stocks). Of course, USDJPY was in charge keeping the S&P over 1,800; and Nasdaq in the green year-to-date - Mission Accomplished (but Dow lost 16k into the close). A massive squeeze of shorts in the last few days has doubled the market's impressive performance. VIX tested down to almost 14%. Why not BTFATH, Yellen said there was no bubble so we are good to go?
Gold has rallied another 1.2% today and touched resistance at $1,294/oz during Yellen's first testimony to Congress. Gold is testing resistance between $1,294/oz and $1,300/oz. A close above $1,300 should see gold quickly rally to test the next level of resistance at $1,360/oz.
Having decoupled entirely for almost 30 minutes after the Yellen testimony was released, USDJPY and the S&P 500 have now rejoined their delicate fun-durr-mentals-based dance. From the moment she started speaking, stocks began to rise. The S&P 500 cash index opened above 1,800 and has now surged back above the key 50-day moving average (thanks to USDJPY hitting 102.50). Bonds continued to leak higher in yield (5Y +5bps). Gold is surging off kneejerk lows (+$14 from post-Yellen lows). VIX is back under 14.5%.
We've seen the prepared remarks for both panels:
- Yellen - Fed 'easy' but staying the course on Taper
- Taylor - Fed policy is the problem
- McCloskey - Fed regulation has reduced Main Street access to banking
- Calabria - Fed exit strategy not credible; cause of instability, not cure
- Kohn - Fed independence at risk
So this morning's "Monetary Policy and the State of the Economy" (Humphrey-Hawkins) hearing should be a somewhat contentious baptism of fire for Janet as the Q&A starts.
BOTTOM LINE: Fed Chair Yellen's prepared remarks for her semiannual monetary policy testimony before the House Financial Services Committee were brief and did not contain any major surprises. The testimony itself will begin at 10:00am.
John Taylor's Rebuttal Of Yellen: "There Is Little Evidence Monetary Policy Has Helped Economic Or Job Growth"Submitted by Tyler Durden on 02/11/2014 10:21 -0400
While Janet Yellen's testimony will be uneventful, with her toeing the party line, and the fluff Q&A largely priced in - although everyone is eagerly looking forward to the Maxine Waters grilling - far more interesting in today's Monetary Policy and State of the Economy hearing, will be the Part 2, where various experts (full list here), mostly hawks as it would appear, will provide their rebuttals to Yellen's views. None of them is more anticipated than John Taylor - the Stanford economist whose "rule" the Fed uses, even though Taylor himself has largely disavowed the implications of the Taylor rule under current "extraordinary" conditions and has become one of the most vocal opponents of the Fed's unconventional policy. The punchline from his prepared remarks: "there is little evidence that the policy has helped economic growth or job growth. Growth has been less with the unconventional policies than the Fed originally forecast." Or precisely what we have been saying for about 5 years.
Treasury yields jumped 3-4bps higher on the release of the Yellen testimony but are rapidly reverting that loss. Gold and silver were double-slammed but gold remains above its late-day (pre-spike levels) from yesterday at $1280. Stocks and USDJPY entirely decoupled which must have shocked a lot of algos but having failed to ignite any momentum in stocks, USDJPY is now fading fast.
Just as Goldman has predicted (and the market had seemingly hoped would not happen), Janet Yellen, in her first speech as new Fed chair "stayed the course" on the Taper:
YELLEN SAYS FOMC LIKELY TO CONTINUE QE TAPER IN MEASURED STEPS
1YELLEN SAYS RECOVERY IN LABOR MARKET IS `FAR FROM COMPLETE'
YELLEN SAY FED TO `CONTINUE TO MONITOR FOR EMERGING RISKS'
Of course, the Q&A (and hawkish follow-up panel) may well be the "common knowledge" setting moment for today but for now, the Taper is on and forward-guidance
Pre-Yellen: S&P Futs 1801, Gold $1285, 10Y 2.68%, USDJPY 102.3
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A sneaky overnight levitation pushed the Spoos above 1800 thanks to a modest USDJPY run (as we had forecast) despite, or maybe due to, the lack of any newsflow, although today's first official Humphrey Hawkins conference by the new Fed chairman, Janet Yellen, before the House and followed by the first post-mortem to her testimony where several prominent hawks will speak and comprising of John B. Taylor, Mark A. Calabria, Abby M. McCloskey, and Donald Kohn, could promptly put an end to this modest euphoria. Also, keep in mind both today, and Thursday, when Yellens' testimoeny before the Senate takes place, are POMO-free days. So things may get exciting quick, especially since as Goldman's Jan Hatzius opined overnight, the third tapering - down to $55 billion per month - is on deck.
Fed Chair Janet Yellen will deliver her inaugural monetary policy testimony on February 11 and 13. Her prepared remarks will be released at 8:30amET and the testimony will begin at 10amET. Goldman, unlike the market of the last 3 days, believes that Ms. Yellen is likely to "stick to the script" in her first public remarks since taking over from Bernanke but they look for additional color on the following issues: (1) the recent patch of softer data; (2) the Fed's thinking on EM weakness; (3) the hurdle for stopping the taper; (4) the amount of slack in the labor market; and (5) the future of forward guidance.
"Equities are set to top and roll over," and BofAML's Macneil Curry remains bullish US Treasuries despite today's stability (so far) from recent stock gains. He remains negative on risk assets and believes US equities are posied for another leg lower (with perhaps tomorrow's Yellen testimony the un-taper punchbowl removal catalyst) and warns bond bears that a break below 2.657% on the 10Y would indicate the downtrend in yields has resumed. Elsewhere Curry adds "gold is coming to life."
US equity markets traded in a narrow range ahead of tomorrow's Yellen testimony with Trannies underperforming and Nasdaq outperforming. Cross-asset-class correlations picked up from their negligible levels on Friday as JPY (and increasingly 5Y bonds) are linked at the hip with stocks. The S&P cash tested almost up to 1,800 (but failed at 1799.94) then faded. Notably from the European close, equity handily outperformed credit markets - which ended closing near their wides of the day. Treasuries ended the day modestly bid (30y -2bps) but T-Bill yields are starting to reflect debt-ceiling concerns. The USD closed unch - drifting lower from overnight strength - but gold and silver rallied on the day (though faded of early highs). Late-day ramp efforts got the S&P green but failed to cross 1,800... and VIX decoupled on the ramp.
A recent article at the BBC discusses the findings of a report by EU Home Affairs commissioner Cecilia Malmstroem on corruption in the EU. According to the report, the cost of corruption in the EU amounts to €120 billion annually. We would submit that it is likely far more than that (in fact, even Ms. Malmstroem herself concurs with this assessment). This is of course what one gets when one installs vast, byzantine bureaucracies and issues a veritable flood of rules and regulations every year. More and more people are needed to administer this unwieldy nightmare of red tape, and naturally the quality of the hires declines over time due to the sheer numbers required. And that is merely what they actually know about...One gets an inkling of how big the problem may really be when considering the case of Greece.