"Surely You Can't Be Serious", Mr. Chairwoman

Tyler Durden's picture

Submitted by Ben Hunt of Epsilon Theory

The secret of life is honesty and fair dealing. If you can fake that you've got it made.

These are my principles, and if you don't like them ... well, I've got others.

I'm not crazy about reality, but it's still the only place to get a decent meal.

A child of five could understand this. Send someone to fetch a child of five.

Room service? Send up a larger room

"Surely You Can't Be Serious"

In periods of great global stress, like after a World War or a Great Depression, it's not only our politics and economics that are thrown for a loop, but also our art and entertainment. New art, and comedy in particular, that rejects or makes fun of the ancien regime after some enormous crisis is as old as Aristophanes. This art is subversive, often masking its contempt with "low comedy" like puns and slapstick, and no one in the past century was better at this than Groucho Marx. I've lately found myself thinking of Fed communications as a form of performance art ... some sort of Dada-ist comedy routine where Groucho might stick his head out from behind a curtain and photobomb the press conference ... and never more so than on Thursday . If only it were so.

Yellen's press conference was a disaster. Why? Because she said too much. Because on the one hand she took away the insane linkage between monetary policy and the unemployment rate - an ill-conceived and counter-productive misreading of market game-playing that I wrote about ad nauseam last summer, here and here - but on the other hand she gave a specific timing target for raising rates after QE is all tapered out. Combine this with the three-times-in-a-row pattern of cutting monthly QE purchases by $10 billion per meeting, and now even Jon Hilsenrath is projecting specific calendar dates for raising rates.

I mean, you really can't make this stuff up. Did the Fed learn nothing from last summer? This isn't an academic exercise, where statements are qualified and softened by exhaustive footnotes and asides so that no one is ever wrong. The market is a beast, not the review committee for the Quarterly Journal of Economics. Of course the market is going to leap at and devour a statement like Yellen's 6 months comment, and you'd think that the Fed Chair would know that.

All together now, one more time with feeling: ambiguity is good; transparency is bad. You might think that transparency would be helpful in "shaping market expectations" the way you like, but you would be wrong. That's not how the game is played. Can I nominate Bill Belichick for the Fed, at least as far as press conferences are concerned?

And I'm very sympathetic to Kocherlakota's dissent ... if you ARE going to take a stand with an explicit linkage to unemployment rates, then you can't just say "oh, never mind that" less than a year later and expect that whatever new standards you set out for rate-setting are going to be particularly effective in molding expectations. It's not a matter of credibility, per se. That's a very specific word with a very specific meaning in game theory, and the simple truth is that the Fed will always be credible enough to be an effective game player. The problem is actually that the Fed is too credible, and that Yellen's remark about raising rates within 6 months of stopping QE3 takes on far more import than was intended.

Sigh. Look, maybe I'm over-reacting here. Maybe we are all so freaking exhausted by the constant use of communication as policy, by the unceasing effort of the Fed and its media intermediaries to play the market, by the Orwellian nature of a monetary policy apparatus where everything is spoken for effect, that we will all just go about our business and slog along. And I'm sure we will see lots of back-tracking over the next few weeks, lots of data-dependence talk, lots of "Yellen really didn't say anything new", yada yada yada. But my fear is that we've set the stage for, if not an inflection point in the path of the stock market, then another rate shock similar to but smaller than last summer's ... an aftershock, in geological terms.

What am I looking for to see how this plays out? I think we are now even more strongly in a good-news-is-bad-news (and vice-versa) world. If we start seeing some strong economic data come out over the next few weeks and months, then I think the market - particularly the bond market and emerging markets - could get pretty squirrelly. Not that US stocks would be immune from this. Remember, the modern day Goldilocks environment for stocks has nothing to do with a happy medium between growth and inflation, but everything to do with growth being weak enough to  keep an accommodative Fed in play. Strong growth data would augment a Common Knowledge structure that the Fed is on track to raise rates sooner and more rather than later and less, and that's no fun for anyone. Then again, if global growth data remains weak - and you really can't look at what's coming out of China, Europe, or Japan and think that the global growth story is anything but weak - that creates enough uncertainty about the Fed's path (not to mention the cover for political and economic Powers That Be to wage a full-scale media war to keep monetary policy in QE la-la land forever) to support the markets. Sounds a lot like Freedonia to me. Rufus T. Firefly for President?

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SandiaMan's picture

Groucho: How many kids you have?

Contestant: 12

Groucho: Gee lady I like my cigar but I take it out every now and then!

_ConanTheLibertarian_'s picture

She should ask Monica where to stick the cigar.

Abi Normal's picture

Lookit, ChairPantyWaste is gonna cut the QE and raise rates in 6 months, or not, how much clearer can I be?

Kirk2NCC1701's picture

Usually you can tell where the cigar 'came' from, by its color. ;-)

Cigar hum(id do)or.

WmMcK's picture

"I like pancakes, but I don't have closets-full"

StychoKiller's picture

"A man is only as young as the women he feels!" -- Groucho (Julius) Marx

kchrisc's picture

"The ponzi must be maintained."

"Must steal more."

"What guillotine?!"

holmes's picture

Actions speak louder than words. Either the shitheads are interfering with the real economy or they aren't. Look at the condition of the real economy. Obviously they are.

Unknown Poster's picture

The S&P soared when Summers withdrew his name from consideration for fed-head. The markets got what they wanted.

bubblemania's picture


Of course, Mr. Chairwomen - BubbleJew supeme knows her the impact of her statements!

If you listen to most Fed members its sort of obvious that they are getting worried about the massive equity and bond bubble they have created and are trying to talk it down with measured steps.

NoDebt's picture

They're down to "guidance" now.  Pretty soon it will be threats.  They have no policy bullets left, other than printing till the cows come home.

NYPoke's picture

Yes, I can be serious and don't call me Shirley.

Gringo Viejo's picture

"There's got to be a Sanity Claus"........Harpo Marx

WmMcK's picture

+1 But you can't fool me ... Zeppo.

StychoKiller's picture

Harpo was the silent one, you must mean either Groucho or Chico.

Gringo Viejo's picture

Quite right Stycho. It was Chico and I was too late in remembering to edit it.

xamax's picture

In our view, S&P500 will continue to surge, we see 2400 by year end.
We dont see any alternative to stocks.

Motley Fool's picture

I would like to share my thoughts on the first Fed press conference for Yellen, that has been called disastrous.

Specifically highlighted was this comment :

“So the language that we used in the statement is considerable period. So I, you know, this is the kind of term it’s hard to define. But, you know, probably means something on the order of around six months, that type of thing.”


I will start by noting I agree this was a disastrous statement, and elaborate as to why I consider it such.
The first thing I would like to note is that the Fed under Bernanke has used the term 'considerable period' or synonyms before, usually in relation to something like how long interest rates would be held low. I have always understood this to mean, and it has been implied to mean something in the region of 1-3 years, with perhaps a median of about 2 years.

This would imply that medium term consideration was t about the 6 month to 1 year range, and short term in the 3-4 month range.

Now, those in industry use these estimates to guess at the likely environment going forward, and base contracts upon such. If I know for example that the fed will keep rates low for the next year at least, then I can easily sign a yearlong contract. 

A period of 6 months however is very short in terms of the business cycle. Dangerously short to be making forward estimates from.

The least one can take from it is that rates Could go up in six months time, and thus it would be dangerous to sign a year contract.

If one uses 6 months as the basis for long term projection, then medium term would be 2-3 months and short term would be one month.

Now, there are two main factors that determine how one would define long term in this context. The first is the amount of focus one is placing on the present, how much of your attention the current minutia require. The second is your confidence in the future remaining the same as the present.

By defining this 'considerable period' differently, specifically shorter, than her predecessor, she is signalling both that she is very concerned with the present, and has little confidence in the future( and perhaps their ability to manage things forward for longer than this).

Of course 'considerable period' could be defined as even a shorter timespan, quite reasonably. It is all a matter of perspective. Consider Gideon Gono at that height of the Zimbabwe hyperinflation. For him 1 month would have been a considerable period, 1-2 weeks medium term, and perhaps a few days short term. It might even have been worse.

This does however illustrate the point of those two factors.

So what remains to be asked is how long one could define it and remain credible.

I think 6-months is too short to retain credibility, and that is the crux of the issue ito why it affected markets so badly.

At the very least one would define it as one year, if you wish to illustrate confidence in your own power to steer future events.

/ramble off ;)

StychoKiller's picture

Keep that up and they'll lock you up in a rubber room!

New American Revolution's picture

You have to look at the bigger picture here.  Yellen is projecting a 12 month time line to raise rates because this will be the same time when the dollar really starts to slip as the worlds reserve currency according to current projections of a $100 billion per month liquidation of foreign held U.S. T bonds by the countries that intend to abandon it.   What she's telling everyone is that when that day comes, her only tool (at least the one she plans on using), is going to be raising rates in order to support the dollar.  Sure, she won't say a word about how FED and the Bush/Obama Neo-Con polices took America to, and will keep us in, a luke warm bucket of shit, but this is still how she intends upon handling her christening neo-nightmare crash.   The scary thing is that while she's carrying out the Bernanke plan to take him off the hook, she is showing herself to be a damn site smarter than Helicopter Ben, but dumber than Larry Summers because she actually took the fucking job.  Go figure.  Still, our objective at www.electanewcongress.com, is to Elect A New Congress and then pass SB 209/HB 24 for a full audit of the FED,... which it will never survive.  Then we don't have to put up with any of these illusionary economists and we can write down all the debt that  the FED is carrying, along with the 2B2Fail banks and all their deriviatives, institute a classical gold standard regulated by a Suffolk style central bank run by accountants, and re-establish the dollar as the worlds reserve currency and kick everyones ass but our own... for a change.   Serfs Up America!

Ban KKiller's picture

The people who think they are in control are not, they know it, and Yellen is an example. The FED knows to their core that they are a house of cards and all it would take is for a President to sign an order where we, the people as government, issue dollars again. What could go wrong? 

Those that think they are in control have powerful enemies. These fuckers kill each other too! 


TrustWho's picture

1) When The Fed wants to convince the market that ZIRP will last forever, transparency is good to create the carry trade and reduces interest rates across all risky assets (eg. European periphery.). 

2) When interest rates are headed north, ambiguity becomes the supreme communication policy. 

3) Yellen is in over her head and financial markets will eat her alive. She will soon be a puppet.

Midnight Rider's picture

It won't matter. Serious side-effects of long term ZIRP/QE/etc. will surface at some point in the probably not too distant future taking control out of the hands of the financial manipulators. The Fed probably had a bit of a bead on this reality and is attempting an exit before SHTF. Whether they succeed or not doesn't matter.

TrustWho's picture

I have always wondered, who decided to take out Jon Corzine? He, like EVERYONE of the financial power elites, executed a simple leveraged carry trade, but his timing SUCKED. I am convinced that there is a great story about the insider game in the Jon Corzine take-down.

moneybots's picture

"Yellen is in over her head and financial markets will eat her alive. She will soon be a puppet."


Financial markets ate Greenspan and Bernanke alive.  The DOW lost 22% in one day, under Greenspan, a record.

Kirk2NCC1701's picture

I got way more out of "Surely you're joking, Mr. Feynman".

Now there was an intellect, who stood on his own merit, who ADDED something of great value to mankind, and got a Nobel Prize much more deserved than all Economics or Peace Prizes put together.

ebworthen's picture

What the FED does has ZERO benefit for the American Citizen and EVERYTHING to do with the benefit of the banksters, the M.I.C., and the kleptoligarchial monster that feeds off it's own.

If you understand that, FED "baffle 'em with bullshit" double-speak makes perfect sense.

doggis's picture










teslaberry's picture

the idea that yellen's press conference was a 'disaster' is as big of a joke that the fed were a bunch of 'bumbling fools' making unknowingly bad incompetent choices in 2008. it is nonsense. however the opposite of nonsense is not golden truth, but clarity and insightfulness. in other-words, the opposite of noise is communication. and the endless torrent of noise about yellens press conference is as meaningful as the continuous stream of verbiage that poured forth like gravy over ever consecutive press conference by bernanke.


you can attempt to put lipstick on a big. financial journalism is gravy sauce on sawdust.

YHC-FTSE's picture

I don't understand what I just read. I get the vague inference that old Yeller said too much, and that the "markets" (We're talking about a couple of squids here who control the Fed anyway) will connive to prevent their income from crashing if, as it was implied, QE is withdrawn and rates are hiked, but the rest of it was beyond me.

It's amazing that somebody could type nearly 900 words and pass almost no information. I had to look up "Squirrelly" in the urban slang dictionary to learn that it means "Bizarre". As for the names dropped like, Rufus T Firefly, I couldn't be bothered. Was this written by a teen on ritalin and coke?

The probability of QE being withdrawn is zero. The markets are not magically going to sustain itself with the global economy being what it is: Shit. From now until 6 months, there will be such jaw dropping bullshit from the msm about the economy (And foreign policy, aka wars through deceit), that even the half awake zombies stuck fast to their teevees with superglue will start to tune into the news whenever they need some comedy and howling laughter that comes from the ironic disparity between what they can see outside their windows and what is presented by the media.

So how will Yeller keep her word? She won't.

sunny's picture

In general I completely agree with Hunt's analysis, as I do with the understandings so elegantly offered by Doug Nolan & Jeremy Grantham, with the air tight mathematical and historical logic of Hussman. Opinions and logic are nice but can only carry someone so far the data is always correct.  Alas, do a 5 year monthly chart of the Dow, SPX, Nasdaq, Russell 2k.  I can only surmise that to date Hunt and Hussman and Nolan and Grantham are wrong and the markets are right.  Eventually these writers will be right, but "eventually" is always 2 quarters away.

nmewn's picture

Rufus T. Firefly: Not that I care, but where is your husband?
Mrs. Teasdale: Why, he's dead.
Rufus T. Firefly: I bet he's just using that as an excuse.
Mrs. Teasdale: I was with him to the very end.
Rufus T. Firefly: No wonder he passed away.
Mrs. Teasdale: I held him in my arms and kissed him.
Rufus T. Firefly: Oh, I see, then it was murder. Will you marry me? Did he leave you any money? Answer the second question first.

moneybots's picture

"Yellen's press conference was a disaster. Why? Because she said too much. Because on the one hand she took away the insane linkage between monetary policy and the unemployment rate..."


It wasn't the press conference that was a disiaster, it was the FED policy that was a disaster.  The DOW doesn't belong upwards of 16,000.

samsara's picture

Tylers 10 points for the reference


"Surely You're Joking, Mr. Feynman!"

SmittyinLA's picture

Ah, I sent her a FEDSPEAK Random Bullshit Generator and she is a-usin it, that's all.

Amish Hacker's picture

Duck Soup not only had a lot of great lines, it's one of the best antiwar movies ever made. It should be shown at a joint session of Congress.