San Francisco Fed

Last month it was a tribute to his cat. This month, the manager of the world's largest bond fund discusses sneezing: "A sneeze is, to be candid, sort of half erotic, a release of pressure that feels oh so good either before or just after the Achoo! The air, along with 100,000 germs, comes shooting out of your nose faster than a race car at the Indy 500. It feels sooooo good that people used to sneeze on purpose." He also discusses the aftermath: "The old saying goes that when the U.S. economy sneezes, the world catches cold. That still seems to be true enough, although Chinese influenza is gaining in importance. If both sneezed at the same time then instead of “God bless you” perhaps someone would cry out “God have mercy.” We’re not there yet, although in this period of high leverage it’s important to realize that the price of money and the servicing cost of that leverage are critical for a healthy economy. " He also talks about some other things, mostly revolving around long-term rates of return assumptions and what those mean for investors.

Investors take note. One of the primary market props of the last five years is being removed. What happens when the markets finally catch on?

The Federal Reserve is likely to suffer significant losses on its Treasury holdings once interest rates rise from historic lows. Indeed, the researchers at the San Francisco Fed have recently called for "stress tests" on the Fed itself. Fail to prepare ... prepare to ...

With another session in which US futures levitate into the open, despite a modest drop in the Nikkei225 (to be expected after the president of Japan’s Government Pension Investment Fund, the world’s largest pension fund, said that a review of asset allocations into stocks is not aimed at supporting domestic share prices) and an unchanged Shanghai Composite while the currency pair du jour, the USDCNY, closes higher despite tumbling in early trade (which also was to be expected after a former adviser to the People’s Bank of China said China is headed for a “mini crisis” in its local- government debt market as economic reforms lead to the first defaults) everyone is asking: will it be deja vu all over again, and after a solid ramp into 9:30 am, facilitated without doubt by the traditional Yen carry trade, will stocks roll over as first biotech and then all other bubble stocks are whacked? We will find out in just over two hours.

Few laws cause as much high blood pressure as the Affordable Care Act (ACA). Supporters of the law consider it the signature legislation of the Obama administration. Yet, in 2011 the House of Representatives passed the “Repealing the Job-Killing Health Care Law,” one of more than 40 attempts to scuttle the legislation. Public opinion polls are ambiguous: most Americans are against the law as a whole and yet most support many of its provisions. BofAML tries to slice through the partisan debate and show what serious research says about how the ACA will impact the labor market.

"It's going to put my family and me out on the streets," is a perspective shared by many of the 1.3 million Americans about to lose their emergency unemployment claims. The program, started during the recession, was intended to help jobless people after they exhausted state benefits, typically lasting six months. House Republicans resisted continuing the benefits without budget cuts elsewhere to cover the cost. As Bloomberg reports, opponents say the extended benefits discourage the unemployed from accepting jobs and that the program should be curtailed, given the recovery in the nation’s labor market.This has profound implications for the oh-so-important unemployment rate that  the Fed is so dependent upon...

For everyone who shrugged off last week's enormous spike in initial jobless claims as "can't be real", the BLS has another "holiday volatility"-blamed statistical anomaly for traders to ignore. Initial claims rose 10k to 379k - dramatically worse than the 336k expectation - and the worst since March. Though the BLS says no states estimated jobless claims last week, they would suggest, ever so humbly, that we ignore this data and focus on the trend of the 4-week moving average. Total benefit rolls also rose to 3 month highs, up 94k to 2.88 million. The piece de resistance - non-seasonally-adjusted initial claims were down 48.2k (against the seasonally-adjusted 10k), yet both are up exactly 13k from a year ago (seems the Sandy-based YoY adjustments are playing havoc). Lastly, 1,374,031 American on Emergency Unemployment Compensation (ie. extended benefits) - which are about to run out thanks to Congress (which will implicitly send the unemployment rate plunging).

Moments ago, news hit that democrat negotiators Patty Murray, and republican Paul Ryan reached a bipartisan deal to ease the automatic budget cuts by $60b. The deal calls for auctioning of govt airwaves, increased premiums for pensions backed by PBGC, a congressional aide told Bloomberg’s Heidi Przybyla. A press conference will be held at 6pm to unveil the bipartisan budget agreement, according to e-mailed statement. As a result, a January 15 government shutdown will be avoided. The agreement would require federal workers to contribute more to their pensions, increase premiums on companies whose pension plans are insured by the federal government and increase security fees paid by airline travelers.
And as a result of the implicit $5 billion a month fiscal boost, a near-term modest taper is now even more likely.

With even the Fed somewhat challenging the credibility of the official unemployment rate - as labor force participation collapses structurally - the possibility that if Congress does not act by Dec 28th, a further 1.3 million people will lose emergency aid and may be deemed 'out' of the labor force merely exaggerates an already farcical situation. As JPM's Mike Feroli notes, the "official" unemployment rate may drop up to 0.8 percentage points, but it won't mean the economy is any better. Is this the 'excuse' the Fed needs to transition from QE to forward guidance (with the public seeing only a rapidly collapsing unemployment rate as evidence of their success) even as the data that they are so "dependent" on becomes worse than useless?

Yellen is the head of the San Francisco Fed. There is a lot of misinformation about her on the web, but the fact of the matter is that she is a career academic with absolutely zero banking experience or business experience.

The philosophical roots of Janet Yellen's economics voodoo, it seems, are in many ways even more appalling than the Bernanke paradigm (which in turn is based on Bernanke's erroneous interpretation of what caused the Great Depression, which he obtained in essence from Milton Friedman). The following excerpt perfectly encapsulates her philosophy (which is thoroughly Keynesian and downright scary): Fed Vice Chairman Yellen laid out what she called the 'Yale macroeconomics paradigm' in a speech to a reunion of the economics department in April 1999. "Will capitalist economies operate at full employment in the absence of routine intervention? Certainly not," said Yellen, then chairman of President Bill Clinton's Council of Economic Advisers. "Do policy makers have the knowledge and ability to improve macroeconomic outcomes rather than make matters worse? Yes," although there is "uncertainty with which to contend." She couldn't be more wrong if she tried. We cannot even call someone like that an 'economist', because the above is in our opinion an example of utter economic illiteracy.

• How much does QE contribute to the growing inequality of wealth in this country and what are the risks this creates?
• How much systemic risk does the Fed create by becoming what Warren Buffett termed “the greatest hedge fund in history”?
• How might the Fed’s expanded balance sheet and its failure to even begin to “normalize” monetary policy four years into the recovery limit its flexibility to deal with the next recession or crisis?

Pulling from an extensive record of public speeches and FOMC meeting transcripts, Goldman Sachs reviews Fed Chair-nominee Janet Yellen's views on a number of policy-relevant issues.

All the histrionics over the next Fed chairman, pardon chairwoman, choice are over. WSJ reports that Obama is set to announce Mr., pardon Mrs Janet Yellen as Bernanke's replacement tomorrow at 3 pm at the White House. "The nomination would conclude a long and unusually public debate about Mr. Obama's choice which started last June when he said that Ben Bernanke wouldn't be staying in the post after his term ends in January. Mr. Obama gave serious consideration to his former economic adviser, Lawrence Summers, who pulled out in September after facing resistance from Democrats in the Senate." However, while a Yellen announcement, largely priced in, in a normal environment would have been good for at least 10-20 S&P points, with the debt ceiling showdown the far more immediate concern, the choice of the Chairwoman may not be the buying catalyst that it would have otherwise been.

When we first posted this article a month ago, few paid attention as the entire world was gripped in Summer-mania. Now that Summers is out of the picture, and the monetary policy acumen of the former San Fran Fed president are under the spotlight, it is probably an opportune time to recall Janet Yellen's ability to foresee the future heading into the great financial crisis whose five year anniversary took place this weekend. Or rather lack thereof, because as the following excerpt from a 2010 FCIC hearing, noticed first by the NYT, demonstrates, if this is the best Fed head replacement we can do then we may as well fast forward to the Great Financial Crisis ver 2.0:  “For my own part,” Ms. Yellen said, “I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — I didn’t see any of that coming until it happened.”