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Scotiabank: Mind The Gap Between Fed-Model "Theory" And Real-World "Practice"
Via Scotiabank's Guy Haselmann,
Models vs. Real World
Yellen’s press conference was panned by some as confusing and ambiguous. I personally would have given her an A+ had she not made the critical unintentional mistake of reintroducing a time frame. Her stumble pushed her grade to B+. When repeatedly pressed during Q&A to explain what “considerable time” meant, she stumblingly said “six months”.
- The market naturally re-priced by moving forward expectations of the first rate hike from August 2015 to April 2015. This is because, at the current pace of ‘tapering’, April coincides with the date that is six months after QE ends.
Although she never should have specified an absolute time frame, the market should not have been surprised that “considerable period” corresponds to around “six months”. Bernanke borrowed the language from Greenspan who first used the language “extended period” in 2003. They defined it as “2 or 3 meetings” and as “at least six months”.
- Furthermore, in the Fed paper, “The Federal Reserve’s Balance Sheet and Earnings: A Primer and Projections”, the Fed outlined exit strategy assumptions which suggested a period of six months between actions.
The press conference was not as “boring” as some have stated, because the FOMC (represented by Yellen) now appears to be struggling between theory and practice. This marks a significant shift from the majority of members who had almost entirely been relying on models (theory). Several had seemed intent on providing stimulus until economic targets were met without sufficiently questioning the effectiveness of such policies, or their potential consequences. There were hints yesterday that the FOMC now recognizes (practice) that the economy, labor markets and the markets may have stresses that are not picked up adequately by models. This is a positive sign. Yellen again admitted that it is hard to know the magnitude of structural factors impacting unemployment.
It must be exceedingly difficult for one person to collectively represent the highly dispersed views of 19 committee members. In addition, navigating the press conference as the FOMC is in the initial stages of a policy pivot makes it even more difficult. What is even more impressive is the fact that she is operating in the midst of the most extreme policy initiatives in the Fed’s history while other unprecedented imbalances and pressures exist in China and Japan (not to mention elevated geo-political tensions). Her vagueness was actually informative (because that is ‘qualitative guidance’). Yet she still showed an ability to discuss a wide range of views. For all of these reasons, I gave her high marks.
The one thing that seemed perfectly clear is that the Fed plans to continue to unwind the QE program barring some type of disaster. After that, we will all have to reassess and see how things unfold.
The FOMC’s Global Challenges
A confluence of highly concerning factors are all colliding simultaneously, adding to Yellen’s challenges.
Massive fiscal and monetary stimulus in recent years have skyrocketed asset prices, but yet developed world economies have only been able to muster 2.5% growth. The rate of global stimulus in now in decline.
EM central banks (and the RBNZ) have hiked rates.
The FOMC is tapering.
Japan is raising its consumption tax on April 1st (the third arrow is nowhere in sight).
Geo-political tit-for-tat with Russia could spiral out of control. Russia could cause trouble in the Middle East in an attempt to lift oil prices. This would hurt the west (and economic growth), but strengthen the Russia economy.
Beijing has decimated levered carry trades by unexpectedly weakening the Yuan. Beijing is also allowing defaults. The era of riskless borrowing has come to an sudden end. If Beijing is not careful, deeply interconnected cross guarantees could unleash an uncontrollable wave of bad loan defaults. After many years of moral hazard that have fueled the credit bubble, lenders will be more careful. Growth will surely slow but Beijing is trying to prevent a hard landing.
Most investors are expecting a march to higher Treasury yields in the near term, but I think they will be disappointed. For the next few weeks, I still prefer: long 30-yr Treasuries; curve flatteners; long the dollar; and long Treasuries vs. Bunds.
“Theory is when you understand everything, but nothing works. Practice is when everything works, but nobody understands why. When theory and practice are untied, nothing works and nobody understands why.”
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In other words, all these wanna be central planners are clueless
I don't see any theory or practical/useful applications in what the Fed had done since 9/11.
They are playing kick the can and whistling past the graveyard. They are only tapering now because they have run out of options.
They need a miracle, or a massive diversion on which the entire shit storm to come will be blamed.
The banks aren't healthy? What a shocker! Mindless bitches.
There is a nice website that has a free video crash course on it, not only about the money creation process, wich guarantees constant everlasting inflation (++gold++), but also about other scary stuff like exponential growth: http://www.peakprosperity.com/video/223/playlist/153/chapter-7-money-cre...
If you want to know why money creation works the way it does, watch this short video:
Stefan Molyneux - The Story of Your Enslavement: http://www.youtube.com/watch?v=Xbp6umQT58A
"We can only be kept in the cages we do not see. A brief history of human enslavement - up to and including your own."
God damn it... you just had to mention Scotia Bank.
http://www.scotiabank.com/ca/en/0,,442,00.html
http://www.i3investor.com/servlets/fdnews/161644.jsp
http://www.mainebiz.biz/article/20140305/NEWS0101/140309987/court-nixes-...
Schindlers list with a laugh track
http://youtu.be/o_huIjlV6Go
Your welcome
Scotiabank has a subsidiary that refines precious metals; if you're lucky enough to be a Canadian, you can buy Silver or Gold from Scotia Bank; and when the time is ripe; they'll buy it back from you.
Its not that Scotia has a subsidiary. They are just one of the market making members of the LBMA.
I bought lots of gold from Scotia. Their rates are good. I was paying under 1% commission with orders over 10k. And the gold is right there. Problem is, they changed the bank prices to the same as their online prices which are not as cheap.
Americans, can you buy physical from the bullion bank dealers , HSBC or JPM in the US ? Have you tried ?
What about Europeans ? Can you buy from your bullion banks ?
I think its better to deal with a bullion bank rather then these shoddy dealers like Tulving.
Arrest the globalists. End the FED and their financial terrorism.
6 month countdown.
Got it.
What if everything works and everyone knows why?
http://www.youtube.com/watch?v=aVX-voqWuwY
Please, we need more than 3 people around here.
ScotiaBank itself is feeling the Feds inflation. Just look at this :
http://freegoldobserver.blogspot.ca/2012/04/federal-reserve-bullion-bank...
When currency loses value, it squeezes the profit margins of goods producing companies. Rather then raise the prices of their product, they first find ways of cutting the quality of the product while leaving the price the same. This is still a loss of purchasing power, even though the nominal price stayed the same. And this loss of quality does not show up in the government Consumer Price Index.
Is that you, Janet?
Long dollars? What you been smokin girl?
Theory is educated conjecture. Practice is application. If observation does not follow theory, then the conjecture is wrong, and repeating it expecting different results is insane.
17.5 trillion dollars worth of mistakes and counting with no way to ever service it without adding more to it. That's the reality. The US is much more likely to break apart before the FOMC ever finishes tapering.
Another banker hanging on every word of the FED chair as if what she says actually fucking means something. What a bunch of pontificating conjecture buttressed with pseudo economic tripe.
Virtually every ZH er has something more intelligent to say on this I am certain. 10 minutes of my life I dont get back.
Another Fed partner! ....and metals manipulator under Scotia Mocatta.
A BIG KCCO to you Tylers !!
"KCCO" - there are 26 letters in the English alphabet. With those 26 letters you can say almost anything, but ONLY if you know how to spell the words you want to say. When you use just individual letters, we get to make up what you said instead of understanding your intent.
I'd blame the abreviation mania on twitter, but it has been around longer than that. I think the use of letters only, with no actual words, is a form of elitism - the wanna-be's use only the letters on the assumption that only they and their particular elite group know what their letters mean. For some reason, this probably makes them feel "special". Or perhaps they assume that everyone shares their brain, and so their letter string has some universal meaning. Either case is mistaken.
Just think how special you could feel if you actually spelled out what you want to say, and thereby actually COMMUNICATED with other people outside your particular group? Others could understand what you said - what you meant - what you wanted to COMMUNICATE!!! Wouldn't that be fine!
Yes... I know. Your group/knowledge base doesn't want the riff-raff of the general public to gain knowledge or understanding. I get that. But may I suggest that when you are posting on a public venue, you use REAL words? Personally I don't care if you belong to a special group. Don't really communicate. It's your little world, and I wish you well with it, and the rest of the world will just ignore you.
So the US gets so flooded with debt that the public stops spending, the Fed steps and takes over, further increasing the debt and now Janet thinks this situation can be unwound. That point was passed years ago.
Just some moar fairy land bullshiite from a TBTF employee who actually gets paid between 300k to $1MM / year (including immoral bonus) to spout this feckin' claptrap.
If this douche nozzle had started with "The CB's are just printing fiat, the banks are the first in line to use and then everyone else starting with those connected to the banks", I would think that he was being a bit honest. But to start this bullshit about curve flatteners and long USD, w/o any attemnpt to describe the immorality and evil; peresent in the CB's printing of money ... makes him a collaborator.
No sympathy for collaborators during the reset.
You people just dont get it, listen; we can create an infinite amount of money with basically zero expense of resources and use it as payment all over the world for actual tangible stuff. As long as we can do that (forever, because we will kill anyone that attempts to fuck with our scheme) the market will continue to go up and we will be 'aight.
Just look at the e-minis; look at them! People are panic buying the all time fucking highs. We are clearly going to the moon. TO. THE. MOON!
since the FED was formed (by bankers), the dollar $ has lost 98% of value, dropped gold&silver backed fiat,have high rates of unemployment, inflation not controlled, .gov debt expanding every year, more international cooperation w loss of national interests to globalists and surprise -global bankers, from BIS to IMF to CB's..moves to off shore more and more jobs (ya I hear that sucking sound- ross p)..along with loss of personal freedoms (war on terror HLS otherwise known as the SS)..and for those who have missed it, the massive growth of goverments across the world funded by debt and to top it off, giving these .gov's the ability to use debt to FIGHT WARS..thank goodness we have Jews running these banks at least we can count on them being moral people...oh wait.
Dang, I saw the title and I thought we were talking about the Chive:
http://thechive.com/category/girls/mind-the-gap/
Enjoy - NSFW... but then again, neither is this site really.
Bernanke wrote that QE doesn't work. Theory and practice are in sync.