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Deciphering Yellen's Rub-Goldbergian Message
Via Scotiabank's Guy Haselmann,
Through the overly-complex verbiage riddled with a copious number of contingencies, a simple message was actually able to surface. The net result is modestly hawkish and one consistent with our "Sooner but Slower" rate cycle perspective.
Use of the word “patient” is analogous to “slower”; while Yellen’s comment about how it is “unlikely to begin normalization process for at least the next couple of meetings”, corresponds to a “sooner” lift-off. The marketplace had expected the first hike to occur in the June-September corridor, but Yellen moved it slightly forward to the April-June range.
The word “patient” will likely be used throughout 2015, for fear of unsettling the apple cart of bubble-like financial markets generated after six years of uber-accommodative policies. In other words, to prevent roiling Treasuries or risk assets too much -- after interfering for several years with the market’s normal price discovery functions – the Fed will have to tread carefully and slowly.
A modestly “sooner” hike is one reason why the front end of the Treasury curve is under pressure. However, a hike in ‘mid-2015’ is still quite far off and not a certainty given the worryingly and quickly changing geo-political landscapes. Therefore, due to carry and ‘roll –down’ benefits, Treasuries will not be able to price too many hikes in too soon.
The real hawkish part of the press conference was when Yellen defined the decline in oil as a “tax cut” to the consumer. The downward pressure it will have on headline CPI over the next few months, she explained as a “transitory” condition.
It is counter-factual to know whether economic progress has been the result of a normal business cycle or the result of Fed policy. After all, is ZIRP (or QE) creating jobs or impacting inflation? The plunge in the velocity of money is a sign that the Fed’s printing was not used as intended. It is a sign of extreme indebtedness. In this sense, Fed policies have borrowed from the future, while encouraging wild market speculation.
If economic progress has been more about the business cycle and it begins to turn by ‘mid-2015’ (or should a geo-political event damage rosy economic forecasts), then the Fed could lose its window of opportunity for ‘lift-off’. Is it possible that the Fed hikes even in the face of worse economic and financial market conditions? If conditions got really bad, it is possible that the Fed may not be able to hike at all in 2015.
- This is certainly the risk of not hiking even “sooner” under the nearly ideal current conditions.
Such a ‘lower for longer’ potential scenario would then be bad, not good, for risk assets.
Under such a scenario, risk asset valuations would look even further deviated from their economic fundamentals. The fallout in financial markets would likely be severe. The Fed would have to take the blame for focusing too much on its inflation mandate (of which it has little control) and not enough on the current risks to financial stability.
Too often times in history, the Fed has been the source of ‘boom to bust’ cycles. It is easy to envision that another one currently unfolding at this very moment.
Markets are being driven more by fear of missing the upside, and fear of under-performing peers and benchmarks, than by any other factor. This Pavlovian response has worked well in recent years and encouraged by the Fed. However, this pattern is in the 9th inning. Moreover, such herd-like behavior will run into great difficult due to dreadful market liquidity that is the result of regulatory over-reach; indications that were evident in markets over the past few weeks.
I asked a trader today what he gleaned from the Fed meeting yesterday. He said, “Nothing. Fed policy was completely unchanged”. If this is true, then the market over-responded. While I believe the FOMC was slightly hawkish as noted above, the global situation is too fluid to price a Fed that when they finally move will only move gradually. In the meantime, markets need to contend with problems being created by falling oil, Greece, China, Russia and other areas. Could the Ruble go to 100? Putin said he will not bother with it, so why not? How will a devalued Yen and Ruble begin to impact China?
It is all about positions into year end. Rising uncertainties and changing risk/reward distributions for portfolios will keep volatility high. Treasuries 10 years and longer will stay low for a while longer. The post FOMC re-pricings are opportunities to buy the dip in long-dated Treasuries, and pare exposures to risk assets. Fade the over-reactive moves.
“I know you think you understand what you thought I said but I’m not sure you realize that what you heard is not what I meant” – Alan Greenspan
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She could have just said:
We are continuing to do everything in our power to enslave and impoverish most of humanity in a manner they likely won't understand, while maintaining the highest standards of living possible for the elite.
She says a lot and it means nothing....just noise
She say transitory moar in 1 hour than Ben did in 6 years
Fuck her and the horse she rode and rode and rode
i asked a trader today what he gleaned from FED policy, he answered:
"nothing, as long as i get my million dollar bonus i don't give a rats a$$ if what i do is legal or if it will implode my employer. i just push buttons"
Forward Misguidance
In 1931, when Brave New World was being written, I was convinced that there was still plenty of time. The completely organized society, the scientific caste system, the abolition of free will by methodical conditioning, the servitude made acceptable by regular doses of chemically induced happiness, the orthodoxies drummed in by nightly courses of sleep-teaching - these things were coming all right, but not in my time, not even in the time of my grandchildren...
Twenty-seven years later,... I feel a good deal less optimistic than I did when I was writing Brave New World. The prophecies made in 1931 are coming true much sooner than I thought they would. The blessed interval between too little order and the nightmare of too much has not begun and shows no sign of beginning. In the West, it is true, individual men and women still enjoy a large measure of freedom. But even in those countries that have a tradition of democratic government, this freedom and even the desire for this freedom seem to be on the wane. In the rest of the world freedom for individuals has already gone, or is manifestly about to go. The nightmare of total organization, which I had situated in the seventh century After Ford, has emerged from the safe, remote future and is now awaiting us, just around the next corner. - Aldous Huxley, 1958
"I think I'm turning Yellenese, I think I'm turning Yellenese, I really think so,
I think I'm turning Yellenese, I think I'm turning Yellenese, I really think so."
Er..., no. I don't.
"I got your picture."
(h/t to The Vapors)
IT IS ILLEGAL TO POST AN ARTICLE TALKING ABOUT FED LANGUAGE COMPEXITIES AND MISSPELL 'RUBE GOLDBERG' IN THE TITLE OF THE ARTICLE.
Carry on about your business. I'm off my soap box.
Rub-Goldbergian - It was a Freudian slip...
It is also illegal to have an article about Fed Speak and not include a word cloud.
WHERE IS MY WORD CLOUD!!?
Did you mean Rub Goldman?
She SAID something? Funny, I wasn't listening.
Really doubt that ANYTHING this person/entity says will impact my life severely or in near future.
Of course "In the long run..." she'll be fat, old and ugly. And brain dead. Oh, wait...
We rubbed some markets.
This analysis just in from Public Enemy: "Don't believe the hype, it's a sequel..."
The banksters need to repay us.
Guillotine the Fed!
This 'deft' parsing of words, "Patient" and "Considerable Time", there's something you need to know about this.
This was SPECIFICALLY intended to dupe algorithms that trade based on the key words in the statement.
They INTENTIONALLY put BOTH the sell-trigger words AND the buy-trigger words in the report.
THAT is why the markets bucked like a bronco yesterday.
BUT...Who was this aimed at? HFT traders, Market Makers, and the biggest banks are the only possible answers.
Which leads to an interesting conclusion....Aren't those guys the Fed Banks' owners and/or debtors?
It appears to be the Fed Owner Banks intentionally took a bite out of their children.
How bad do things have to be, how great must the risk profiles be, how over-leveraged and unsustainable must the credit pyramid be for these guys to begin eating their own?
OT. Did anyone catch the news on the closing of the Trump Taj Mahal in Atlantic City....a last second agreement to save it, was then blown up when Ichan backed out of what he supposedly agreed on....3,000 lose their jobs a week before Christmas !!!
WHAT A SCUMBAG SOUP = Unions. Christie. Sweeney. Icahn. Even Trumps Name.
So how would you keep a nonperfroming business going...gubmint?
Trump isn't operating the casino as a jobs project...though unions often view it that way. Want Christie to order Trump to keep the doors open? That would pretty much be the sign that no one should ever open a business in NJ ever again. Economic downturns hurt. They cause owners to close businesses and put employees on the street when there are no other jobs.
The bad news is, things are good now, wait til it gets 'really' bad.
Fucking start it right now stupid bitch!
And in a way that pleases everyone (except prudent savers of course):
Just like gas prices have 9/10ths of a cent, increase rates by .0099% every week until we're normalized to 3.5%. Shit, do it every month - still buys plenty of time to print the dollar into oblivion... and then we don't need to wait for the FOMC 'committee' rhetoric. fucking pricks
I gave up counting how many times she said, "UMMM"
The mid-October and recent sell-offs in credit (and to a lesser extent, equities) really showed the complete and total lack of liquidity in the market.
Trade converts/high yield. Air pockets galore in the energy space. Bid/ask spreads you could drive three mack trucks through. This WILL spill into the rest of the credit market in due time (oil back down below $55 and markets still screaming). The lemmings will be falling all over themselves to be the first to the door when this all comes unglued the next time someone goes "BOO"....
Sell into strength here. It won't last for long....
The game seems to be figuring out how others interpret the Fed's musings....the Fed itself rarely says anything (that makes real sense).
In truth what can the Fed really do? They could raise interest rates but, if they do a lot of it, that would cause the USG to go broke. They could hyperinflate but they are attentive to that issue and will increase base money cautiously even though there is already enough kindling to cause a fire in currencies already.
This is like watching an execution that has been postponed due to rain. We know what is coming, we know it is going to be bad, we just don't know exactly when the blade will fall.
Silver Update 12/9/14 Market Madness
http://www.youtube.com/watch?v=GYFejsGYua8 (18:09)
ZH chart shout out @ (13:42)
I'll kick my addiction after one last high...Oh no I guess I'll come down too fast, I better have another...Oh fuck! The pain hurts give me another hit...
Central banks are the bane of humanity.