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The Yellen Fed Knows Stocks Are Bubbling

Phoenix Capital Research's picture




 

Historically, the Fed has claimed to have two mandates: maintaining stable prices and maximum employment.

 

However, the Dodd-Frank bill, which passed in 2010, unveiled a new, third mandate for the Fed.
 

Dodd-Frank instituted a third official mandate for the Fed, empowering it to regulate systemic risk and preserve financial stability. The Fed is now required to present its findings on risky, non-bank financial firms to the Financial Stability Oversight Council, which instructs the Fed on how to sanction those institutions.

 

http://www.cfr.org/international-finance/role-us-federal-reserve/p21020

 

Bernanke, obviously didn’t take this mandate to heart as his policies helped increase financial instability rather than reduce it.

 

With Janet Yellen’s Fed, however, the focus is different.

 

While I am not necessarily a fan of Yellen or her policies, I have to give her credit that she did perceive the housing bubble in advance (unlike Bernanke). In fact, she even advocated raising interest rates at the time.

 

On some level Yellen is aware that the Bernanke Fed’s policies have run counter to the third mandate implemented by the Dodd-Frank bill. Indeed, during a key hearing in November 2013 before she was appointed next Fed Chairman, Yellen openly stated that QE created “potential risks for financial stability.”

 

This theme of increased focus on financial stability continued into her instatement as Fed Chairman. Indeed, the entire final portion of Yellen’s first semi-annual monetary policy report to Congress focused on strengthening the financial system AKA increasing financial stability.

 

Yellen is evidently aware that stocks are bubbling. As Fed Chairman she cannot admit it (no Central Banker will ever say the markets are in a bubble), but the signs that she is aware of this are present.

 

Yellen is also aware on some level that Wall Street believes she will be even more dovish than Bernanke was. For this reason, her first Q& A as Fed Chairman saw her even mentioning raising interest rates in the future.

 

The financial media lambasted Yellen as a fool who is damaging the markets. But the reality is that Yellen is attempting to talk stocks down without bringing about a collapse.

 

We get additional evidence of this from the fact that the Fed’s stress tests failed Citibank. The Fed also requested Bank of America and Goldman Sachs to resubmit their capital plans.

 

I am not naïve enough to claim that Yellen wouldn’t do anything to hold the system together if the stuff hit the fan again a la 2008. But the market right now is not in 2008 mode. It is in 2006-2007 bubble mode. And Yellen’s Fed is working to get this under control without creating a panic.

 

If you need additional evidence that Yellen is taking a different route from Bernanke, consider the recent speech from NY Fed President and uber-dove Bill Dudley in which he admitted that one could argue…

 

… that Fed policy has been too accommodative for too long, creating risks for financial stability worldwide.

 

http://www.newyorkfed.org/newsevents/speeches/2014/dud140327.html

 

 

This is Bill Dudley we’re talking about. A man who has done nothing in the last five years but clamor for more QE.

 

Investors take note, the Fed is growing increasingly aware that the markets are in a bubble. 

 

This concludes this article, swing by www.gainspainscapital.com for a FREE investment reports Protect Your Portfolio, which outlines how to protect your portfolio from bear market collapses.

 

Best Regards

 

Phoenix Capital Research

 

 

 

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Mon, 04/28/2014 - 17:21 | 4705446 TrustWho
TrustWho's picture

So, the policy was Bernanke's. Bernanke is the only CRIMMINAL. Yellen is going to take Bernanke's head and change policy. Bullshit, but I like the in-fighting. The roaches are getting nervous as the light enters the room.

Mon, 04/28/2014 - 17:07 | 4705398 Felix da Kat
Felix da Kat's picture

In sailing lore, it is considered a bad omen to place a woman at the ship's helm. Let us hope that such is not the case with Yellin's helmsmanship of the Fed. It does appear however, she is sailing straight for the rocks.

Mon, 04/28/2014 - 17:06 | 4705396 Comte d'herblay
Comte d'herblay's picture

I've been aware of, noticed, and cottoned on to the fact that the earth is round.  But I can't do fuck all about it.

Mon, 04/28/2014 - 16:14 | 4705210 tradewithdave
tradewithdave's picture

Qualitative Easing... the new easy button.

http://tradewithdave.com/?p=20906

 

Mon, 04/28/2014 - 15:33 | 4705032 Eyeroller
Eyeroller's picture

If she did the "responsible thing" in her first interview with the "6 months" comment, then how come she was doing everything she could in statements later to walk it back?

 

Mon, 04/28/2014 - 15:28 | 4705005 MFL8240
MFL8240's picture

The stock market action today is an outright joke.  I have never seen such outright deception by this sewage sytem in my life!

Mon, 04/28/2014 - 15:22 | 4704981 RaceToTheBottom
RaceToTheBottom's picture

Why just three mandates?

Why not four, five, six?

Why not infinity?

Oh that would be letting the Free Market decide......

Mon, 04/28/2014 - 15:18 | 4704961 elwind45
elwind45's picture

Nobody even remembers the maestro anymore? What the FED lost at its very beginnings and how it hooked and crooked it all back and than some is the real story? Like the market since back than to now? Stronger hands in bonds stocks even gold little guy swimming naked in kneendeep water drowning on a teaspoon! If it was the Fed monkeyhammering stocks thru the AIG portfollio to cause the meltdown than benchwarmers are going to be real pissed at the king(s) for quite some time to come?

Mon, 04/28/2014 - 15:08 | 4704914 combatsnoopy
combatsnoopy's picture

The Federal Reserve is the reason why the banks can borrow tax dollars (interest) on top of inflations so their HFTs can pump up the markets which is 60% of the market's thinly traded volume (according to the CHicago Federal Reserve)? 

Dude.

We already know this.

I'm really surprised, it's not like ZH to spell out the obvious.   If anyone actually paid attention, this is very obvious.  THinly traded stock volume does not increase stock prices and market caps. 

Mon, 04/28/2014 - 14:37 | 4704769 I Write Code
I Write Code's picture

Investors take note, the Fed is growing increasingly aware that the markets are in a bubble. 

So they're not doing it accidentally, they're doing it on purpose, and how does that make it better?  And what will they do next?  My perception is different, that Yellen is trying to clamp down on volatility, so what's the next step there, shut down the auction markets entirely, just price everything daily by government edict?

Mon, 04/28/2014 - 14:54 | 4704836 dontgoforit
dontgoforit's picture

Their options are narrowing significantly.  At least, options that can be effected without bringing on a full-out crash.

Mon, 04/28/2014 - 14:36 | 4704766 lasvegaspersona
lasvegaspersona's picture

If foreign central banks do not continue to increase their treasury holdings the dollar is screwed. As of the February TIC which shows For. Official  holdings down 23 billion or so FOR THE FIRST TIME EVER...it is now semi official...the dollar is in the toaster, getting overly browned and...do you smell something burning honey...?

Mon, 04/28/2014 - 14:35 | 4704749 USGrant
USGrant's picture

Recall that in post crash speeches Yellen admitted not being able to see the housing bubble prior to the crash. This was documented by Peter Schiff some time ago. The president's endorsement, that she had, was just a lie, but what's new?

Mon, 04/28/2014 - 14:20 | 4704699 DOGGONE
DOGGONE's picture

As we know, a picture is worth a thousand ...
SO, show people this:
http://www.showrealhist.com/recDJIAtoRD.html

Mon, 04/28/2014 - 14:17 | 4704689 elwind45
elwind45's picture

The Fed has its own time to reduce its balance sheet! It has a gauge around short rates to moderate how much rates can back up before throwing a recession blanket over the party? And short rates have about 450 BP to reach a historic norm before that event? All the while as short rates go up it puts pressure on BRIC economies and their coupons? Collapse ON

Mon, 04/28/2014 - 14:18 | 4704657 GoldFinch42
GoldFinch42's picture

"I have to give her credit that she did perceive the housing bubble in advance (unlike Bernanke)"

Hmmm?  No so sure.  She is a clueless as Bernanke was, maybe even more clueless.

In a video published on youtube, Peter Schiff reviewed the articles she published before the housing crash and came with the following conclusion:

Yellen has admitted she did not see the 2008 financial meltdown coming which was caused by an enormous housing bubble. Schiff goes on to say, “Not only was she not warning about the housing bubble, she was trying to quiet some of the concerns other people had. She was saying, ‘hey some people are worried,’ but really we shouldn’t worry.

Search Janet Yellen Exposed --The Truth Behind the Myth on youtube.

Mon, 04/28/2014 - 14:51 | 4704824 dontgoforit
dontgoforit's picture

Must have been living in a bubble not to have seen that one coming.  I recognized it in 2005 and I'm just an average guy on the street.

Mon, 04/28/2014 - 14:07 | 4704646 elwind45
elwind45's picture

And about that fourth mandate? Never ever ever look like you favor any candidate A over candidate B fed policies during general elections? And the only one that REALLY FUCKING matters or so we will observe! If they can they will anchor short rates until SIX MONTHS after next presidential election. Or as per forward guidance?

Mon, 04/28/2014 - 14:02 | 4704624 Osmium
Osmium's picture

I thought the FED mandate was to create inflation because inflation is good.

Mon, 04/28/2014 - 14:52 | 4704829 elwind45
elwind45's picture

The central bank and the tax code were actually twins? One to promote growth and the other to moderate it!

Mon, 04/28/2014 - 14:21 | 4704705 CHX
CHX's picture

They have only one mandate, that is to protect their owners (the TBTF), "whatever it takes". All the rest are mere consequences of this single task. 

Mon, 04/28/2014 - 13:56 | 4704590 Soul Glow
Soul Glow's picture

Yellen's Fed knows stocks are in a bubble but Bernanke's Fed didn't?  Is that the implication?  So Yellen is smart and Bernanke is dumb? 

I thought they were both evil.  I'm confused.

Mon, 04/28/2014 - 14:56 | 4704816 dontgoforit
dontgoforit's picture

Bennie boy was aware of how they were affecting things.  Yellen's just got bigger cajones than Ben.  And she's 'new' so she might be able to get away with a few things that Ben could not get away with.

Mon, 04/28/2014 - 13:51 | 4704569 hoist the bs flag
hoist the bs flag's picture

fuck em... print MOAR!!

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