Outside the fetid terrarium where US economists live, like skinks kept as pets by bankers, other forces are in motion. For instance, there’s the non-theoretical, non-financial economy, which is now apparently based on the trade in tattoos, and the journey by automobile from the nearly foreclosed home to the tattoo studio, and to the hamburgers, pizzas, and fried chicken thighs consumed on each end of the journey. It seems, based on the latest odds, that Larry Summers will be entering the scene the way Vincent Price used to enter a Hammer Studio horror film - reliably delivering some deadly unpleasantness. We don’t think a more perfect figure might be found for piloting the garbage barge of American finance over a Niagara Falls of consequence.
While Janet Yellen's chances of becoming the next head of the Fed are plunging, those of Larry Summers are soaring, and it may be all due to a simple Freudian slip by the president. For those who missed, below is the full transcript of Obama's Friday's Q&A on the topic of who will succeed Ben Bernanke. Perhaps the most notable component: the president's pre-slipped reference to Janet Yellen's gender. Because if "he" occupies so little of Obama's attention, then what really are "his" chances of becoming the most important woman in the history of the world? To wit: "I have a range of outstanding candidates. You've mentioned two of them — Mr. Summers and Mr. Yellen — Ms. Yellen. And they're both terrific people."
Do you see what happens Larry when you float a strategic trial balloon or two? Your odds literally surge, at least according to Irish bookmaker Paddy Power, which in the absence of InTrade has become the only market polling venue where pundits put money where their mouth is (as opposed to countless clueless Op-Eds written by every self-proclaimed Fed expert in existence). Where two weeks ago, on July 24, Larry "the hawk" Summers was a long 20% odds challenger to Janet Yellen, who was a solid 75% favorite to become the next Fed chair, since then Yellen's odds have crumbled to just 33% currently, while Summers has exploded higher and after peaking at 60% two days ago has climbed even higher, and is a 66.6% (appropriately enough) favorite currently. Time for the perma-Doves to panic yet?
Following yesterday's soundbite-generating speech, President Obama will continue his 'victory lap' over housing. In a social-media event (#AskObamaHousing), Obama will join the CEO of Zillow to answer all your housing questions. From "which market do I buy/invest in to make the most money in the next 3 months flipping dat house?" to "how will my new rent-backed-securities hold their value if you cap rates?", and from "Isn't Eminent Domain just another wealth transfer plan from a large diversified group of investors to a small of group of people?" to "have you got naked pictures of Larry Summers to ensure that he instantly un-Tapers upon appointment and smashes rates back down?", we cant wait to hear the public's questions... especially as homeownership plunges to 18 year lows and rent costs surge, the 'recovery' is stalling as hedgies flee, and affordability retreats dramatically. With Zillow's dismal earnings it seems they need Obama as much as he needs housing hope...
However, the Fed is terrified of losing control of the system, so it wants to continue doing anything no matter how futile in order to maintain the appearance of confidence. God forbid anyone figures out the emperor has no clothes…
Two weeks ago, Larry Summers was a long-shot 4/1 odds of becoming the next Fed Chair while Janet Yellen (at 1/3) was a 75% probable shoe-in. What a difference an onslaught of PR makes... According to PaddyPower's now re-started odds for the next chair(wo)man, the 'smart' money has piled into Larry Summers shifting his odds to a remarkable 7/4 (or triple the probability of 2 weeks ago at 60%). Yellen has dropped to a 36% probability (halving her likelihood) and Roger Ferguson has dropped off the front-runners sheet. Is the market jittery as the 'conscientious objecter to QE' rises in certainty.
Just a few days ago on July 27th President Barack Obama said that the next Fed head had to consider average Americans when setting monetary policy. If only that were true.
Confused by all the trial balloons, meandering daily Op-Eds (most of which written by novice journalists with even more bizarre agendas), and "paddy power" market updates? Then here is Scotiabank's Guy Hasselman with his latest rundown on just where we stand in the race for the next Fed chairman.
While assuring the world that he will not give advantage to Larry Summers, we wonder if the meeting with the President will sound a little like this?
- Headlines only idiots, Schrodinger and Goebbels could love:
- For nuns and analysts alike, bank commodity earnings are a mystery (Reuters)
- US spying comes under fresh attack (FT)
- Summers Backed Yellen for Fed Before Rivals Now Prove More Alike (BBG)
- Good Luck Leaving Your Wireless Phone Plan (WSJ)
- Spain's Rajoy says he was wrong to trust treasurer in party funding scandal (Reuters)
- Shell's Profit Falls on Shale Write-Down (WSJ)
- Why Rand Paul and Chris Christie went to war (Politico)
- Sony Returns to Profit Aided by TV Business (WSJ)
It seems 'someone' doesn't want the world knowing just how much of a 'long shot' Larry Summers is for the great-and-powerful-Oz position of Chairman of the Federal Reserve. As we showed just last week, PaddyPower showed Yellen as a strong 77% probability favorite with Summers lagging notably behind in the pack. Then comes this morning's comment from the second most powerful man in the world:
- *OBAMA SAYS LARRY SUMMERS BEING UNFAIRLY CRITICIZED: SHERMAN
- *REID SAYS SUMMERS IS A FRIEND, A `COMPETENT' MAN
And Goldman's Jan Hatzius' warnings that Summers is less 'enthusiastic' on using monetary policy than his competitor Yellen. And now - as the image below shows - PaddyPower has removed its betting on the next Fed head. We just wonder who got the tap on the shoulder?
When Bad Government Policy Leads to Bad Results, the Government Manipulates the Data … Instead of Changing PolicySubmitted by George Washington on 07/30/2013 15:09 -0400
Problem ... What Problem?
While the market's eyes were fixed on the near record slide in Japanese Industrial Production (even as its ears glazed over the latest commentary rerun from Aso) which did however lead to a 1.53% jump in the PenNikkeiStock market on hope of more stimulus to get floundering Abenomics back on track, the most important news from the overnight session is that the PBOC's love affair with its own tapering may have come and gone after the central bank came, looked at the surge in 7 day market repo rates, and unwilling to risk another mid-June episode where SHIBOR exploded to the mid-25% range, for the first first time since February injected RMB17 billion through a 7-day reverse repo. The PBOC also announced it would cut the RRR in the earthquake-hit Lushan area. And with that the illusion of a firm and resolute PBOC is shattered, however it did result in a tiny 0.7% bounce in the SHCOMP.
With the case for the next Fed chairman having devolved to the most ridiculous of decision trees, such as Nancy Pelosi's "it would be great to have a woman", because apparently gender diversity trumps everything in the eyes of the California democrat, the choice of Bernanke's successor is now more nebulous than ever. It has certainly not been aided by the periodic floating of the Larry Summers trial balloon, especially as originating from the Fed's WSJ mouthpiece who one week presents Summers as the favorite and the next skewers his chances. However, one person for whom the Summers vote is essentially a done deal with 90% odds, is Scotiabank's Guy Haselmann. Here is his logic.
Much has been made this weekend of the WSJ story that Janet Yellen (and her dovish counterparts) have been so much more accurate as forecasters than the hawks on the FOMC in recent years. This along with pitting her against the asinine Larry Summers appears to create a shoe-in for 'damn-it-Janet' to take the helm as the new Maestro (or mistress?). But, as CNBC's Rick Santelli points out, it is ludicrous to proclaim a 'winner' based on inflation predictions, as transmission channels of the endless money-printing are jammed (and besides the models that predicted economic growth and new hiring from this 'spiking the punchbowl' have failed dismally). Simply put, Santelli analogizes, "the Cubs haven't won the World Series in a century, but if I poll all of the players/managers and see which predicted we wouldn't win the World Series; and whoever guessed that right, we will make them the manager, does that guarantee me that next year we're going to win the World Series?" The bottom-line, unless GDP shows sustainable growth, the rest is just a "silly discussion."