Janet Yellen

In one of his most voracious tomes, The Wall Street Journal's Fed-see-er Jon Hilsenrath prepared 726 words and published them in 5 minutes to explain that the Fed's forecasts for Q1 were dismally wrong, that the future will all be rosy, and their forecasts spot on, and that the Taper is steady..."Fed officials acknowledged the first-quarter slowdown was worse than expected by saying activity "slowed sharply." Previously, they had just said activity merely slowed...Still, officials nodded to signs of a pickup in economic activity in March and April, suggesting they aren't too worried about the winter slowdown."

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.

A lack of volatility in the markets is dangerous, according to Saxo Bank's Chief Economist Steen Jakobsen, who says we need to know why the danger will be with us for some time. In this brief clip he warns, "...the world seems to think there is a stable permanent equilibrium which doesn't make sense if you think about it, unemployment is still rising, debt to GDPs are still rising, the Crimea situation is increasing in tension, not decreasing, The US still has a lot of stuff to do on social security and welfare spending…for two or three years down the road, with no activity, the world will fall into not only deflation, but also a recession." Jakobsen predicts that, year on year, world growth will actually be "a big fat zero" and therefore the markets are drifting into dangerous territory.

Yellen is evidently aware that stocks are bubbling. As Fed Chairman she cannot admit it (no Central Banker will ever say the markets are in a bubble), but the signs that she is aware of this are present.

The early session risk on trade, which materialized after the Pfizer confirmation it was seeking to buy AstraZeneca, and which sent the GBPUSD to its highest level since 2009, and also sent the EURUSD and EURJPY soaring in the process lifting US equity futures, has started to fizzle on the most recent news out of Ukraine, where the pro-Russian mayor of Ukraine's second largest city of Kharkiv was shot in the back in an apparent assassination attempt, which happened hours before the US is set to announce more sanctions against the Kremlin and its closest financial oligarchs.  As a result, futures have pared gaisn modestly, especially since AstraZeneca made it clear with its initial reponse it has no interest in Pfizer's offer in its current format.

"YELLEN. The strong incoming data on spending eased my fears that we are in or are approaching a recession regime." Janet Yellen's comment above, from June 2008, sounds no different than what is being said right now. What looked like "drags" on tepid growth trajectories was, at that moment, something worse – and would only grow far, far more destructive further on.

Although investors are wondering where the markets are headed, there is one question that is captivating the entire industry.

As we noted earlier, The Federal Open Market Committee (FOMC) has continuously been overly optimistic regarding its expectations for economic growth in the United States. A major reason for the FOMC’s overly optimistic forecast for economic growth and its incorrect view of the effectiveness of quantitative easing is the reliance on the so-called 'wealth effect'. However, "There may not be a wealth effect at all. If there is a wealth effect, it is very difficult to pin down..." Since the FOMC began quantitative easing in 2009, its balance sheet has increased more than $3 trillion. This increase may have boosted wealth, but the U.S. economy received no meaningful benefit. Furthermore, the FOMC has no idea what the ultimate outcome of such an increase will be or what a return to a ‘normal’ balance sheet might entail. Given all of this, we do not see any evidence for economic growth as robust at the FOMC predicts. Without a wealth effect, the stock market is not the “key player” in the economy, and no “virtuous circle” runs through the stock market.

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?

In her first public speech on monetary policy, Janet Yellen made it clear that the Fed intends to pursue a more rules-based, less discretionary policy. This is good news. The bad news, however, is that Yellen focused only on employment and inflation. In that same speech, not a single word was said about attending to speculative risks or financial instability (which are inherent in Fed-induced, yield-seeking speculation). Without attending to that third leg, the Fed is resting the fate of the U.S. economy on a two-legged stool.  The problem is this. In viewing the Fed’s mandate as a tradeoff only between inflation and unemployment, Chair Yellen seems to overlook the feature of economic dynamics that has been most punishing for the U.S. economy over the past decade. That feature is repeated malinvestment, yield-seeking speculation, and ultimately financial instability, largely enabled by the Federal Reserve’s own actions.

With revenues meeting estimates to the dot, and with largely meaningless non-GAAP EPS (because after all NFLX is valued on a 2024 foward basis), Netflix is choppy after hours as algos try to determine what is more important for them:the miss in domestic subs, which rose 2.25 million on expectations of a 2.31 million increase, of the beat in international (and very much money-losing although now expected to be profitable in 2014) subs, which rose 1.75MM vs estimates of 1.64MM.

Meanwhile, we are still puzzling over the miracle produced by the Fed. Uri Geller could bend spoons. The Fed bends the entire economy. Hardly a single price is unaffected. Hardly a single business plan or investment strategy goes forward without an eye on the central bank. Jesus turned water into wine and multiplied loaves and fishes. But the Fed make Him seem like a two-bit shell game hustler. The loaves and the fishes couldn’t have had a market value of more than a few thousand shekels! Every year, more resources must be drawn from the future and enjoyed in the present. Every year, the claims on future earnings increase… and every year the debt becomes even more unsupportable. Somehow. Someday. Those claims on the future will be marked down.

• Putin Doesn't Rule Out Sending Troops (WSJ)
• Japan Cuts Economic View on Tax Rise (WSJ)
• No "harsh weather" in Chipotle restaurants where comp store sales rose 13.4% (PR)
• No sanctions for you: EU sanctions push on Russia falters amid big business lobbying (FT)
• Consumer Spending on Health Care Jumps as Obamacare Takes Hold (BBG)
• China Seen Cracking on Property Controls (BBG)
• Google, IBM results raise questions about other tech-sector companies (Reuters)
• California city evacuation lifted after military ordnance found (Reuters)
• For Obama, Standoff With Moscow Jumbles Plans at Home and Abroad (WSJ)

After a solid day for risk yesterday, surging higher on a continuation of the rumor that Japan's economy will deteriorate so much the BOJ will have to print more money (even though overnight ex BOJ governor Sekido said Kuroda won't print more) we have a more cautious tone this morning heading into the Easter long weekend. A double earnings miss from Google and IBM following the US market close, comments from the Chinese Premier suggesting that the government will keep its policy settings unchanged, and a press conference from Russia’s President Putin in which the Russian president as expected, has refused to back down, has put a small dampener on sentiment today. Add the fact that due to Good Friday April equities Op-Ex will take place today and trading in the next 9 hours promises to be more unrigged than ever, especially if the NY Fed trading desk manages to slam the VIX into single-digit territory

Here’s a guy you want to bet on - Li Ka-Shing. Li is reportedly the richest person in Asia with a net worth well in excess of $30 billion, much of which he made being a shrewd property investor. Li Ka-Shing was investing in mainland China back in the early 90s, way back before it became the trendy thing to do. Now, Li wants out of China. All of it.