Janet Yellen

Drum roll please... A shift from quantitative thresholds to hand-waving along with lower growth expectations and lower unemployment expectations (and more Fed members seeing rate hikes in 2015) - plenty of confusion in there for everyone... Over to you Janet...

As expected Janet Yellen's first FOMC statement showed another $10bn taper (more tightening according to Jim Bullard) but the wordy shift from quantitative thresholds to "we'll know it when we see it" qualitative guidance is relatively dovish (despite improved economic outlooks):

• *FOMC SEES `SUFFICIENT UNDERLYING STRENGTH' IN ECONOMY
• *FOMC SAYS IT WILL LIKELY REDUCE QE IN `FURTHER MEASURED STEPS'
• *FED: LOW TARGET RATE APPROPRIATE FOR CONSIDERABLE TIME POST-QE
• *MORE FED OFFICIALS SEE AT LEAST 1% FED FUNDS RATE END OF 2015
• *FED DROPS 6.5% JOBLESS THRESHOLD FOR RAISING FED FUNDS RATE

While Bernanke's last meeting appeared full of disagreement; this time less so (as Plosser and Fisher appeared not to dissent). Full redline to follow.

Pre-FOMC: S&P Futs: 1873.5, Gold $1337, 10Y 2.712%, USDJPY 101.65

As traders, economists, and TV talking-heads parse every word of Janet Yellen's first FOMC statement for hints at when the punchbowl (if ever) will be removed, there is - as the following chart clearly shows - only one thing that really matters...

The FOMC is now meeting for the first time with Janet Yellen as Chair. Goldman's US team expects the FOMC to deliver an accommodative message...alongside a continued tapering of asset purchases. However, they note, their market views here are likely to shift little in response, as much of that dovishness is arguably already priced, particularly in US rates. SocGen notes that "qualitative guidance" will probably consist of two components: the FOMC’s forecast for the fed funds rate (aka “the dots”) providing a baseline scenario, and a descriptive component signalling the elasticity of this rate path to the underlying economic outlook. SocGen also warns that this transition is worrisome for inflation in 2015. But BofA suggests this is not  problem as The Fed will indicate the US economy "lift-off" in late-2015 will save us all.

• How Putin Parried Obama's Overtures on Crimea (WSJ)
• West Readies Tighter Sanctions After Russia Seals Crimea Claim (Bloomberg)
• Putin says U.S. guided by 'the rule of the gun' in foreign policy (Reuters)
• JPMorgan Said to Agree on Commodities Unit Sale to Mercuria (BBG)
• Short Sellers Target Chinese Developers as Rout Deepens (BBG)
• HFT finally under the spotlight: High-Speed Trading Firms Face New U.S. Scrutiny (WSJ)
• Chinese Dollar Bond Investors Demand Higher Yields After Default (BBG)
• According to Joe LaVorgna it's the snow's fault: Deutsche Bank Said to Plan Job Cuts at Investment Bank (BBG)
• Israeli airstrikes kill 1 Syrian soldier, wound 7 (AP)

As Putin rejoices at his new-found wealth in Crimea after it was annexed (in a duff referendum where there was either ‘now’ or ‘later’ up for grabs to join the Russian Federation), the USA is wiping its tears with things that are closer to home and causing a great deal more grief than far off Ukraine. 

There are three things that are often spotted, widely believed, and actively sought after with little evidence they actually exist:  Big Foot, Ghosts and Economic "Soft Landings."  Over the past 159 years, there is not much evidence that an economic "soft landing" has ever occurred.  However, it is not without precedent that as the economy reaches the latter stage of the growth cycle that the words "soft landing" are uttered by economists and Federal Reserve members. Why do we bring this up?  Bihnamin Appelbaum, via the New York Times, recently interviewed John Williams, the President of the Federal Reserve Bank of San Francisco, who stated: "John Williams, president of the Federal Reserve Bank of San Francisco, is feeling pretty good about the economy. He is ready to continue the Fed’s retreat from bond-buying and forward guidance. And he says he’s optimistic that this time, the Fed will manage to produce a soft landing."

It took only a 60 USDJPY pip overnight ramp to send US equity futures 20 points off the overnight lows in the immediate aftermath of the Crimean referendum, which from a massive risk off event has somehow metamorphosed into a "priced in", even welcome catalyst to buy stocks. The supposed reasoning, and in a world in which Virtu algos determine the price action of the USDJPY from which all else flows based solely on momentum we use the word reasoning "loosely", is that there was little to indicate that the escalation between Russia and Ukraine was set to accelerate further. As we said: an annexation is now seen as risk off, something even Goldman appears unable to comprehend (more on that shortly). In macroeconomic news, European inflation - at least for the Keynesians - turned from bad to worse after the final February inflation print dropped from the flash, and expected, reading of 0.8% to just 0.7% Y/Y, a sequential increase of 0.3% and below the 0.4% expected, confirming that deflationary forces continue to ravage the continent. The only question is how soon until Europe comes up with some brilliant scheme that will help it join Japan in exporting its deflation.

A critical element for investors to consider is that the Fed is not forward thinking when it comes to monetary policy. Indeed, if we reflect on the last 15 years, we see that the Fed has been well behind the curve on everything.

We've discussed margin debt records, the jump in earnings-less-IPOs, the massive surge in junk-debt-issuance, and the spike in penny-stock speculation - which we are told by Janet Yellen are no indication of a bubble in US equities. Given her perspective then we are sure the following two charts will doubly-confirm the lack of any exuberant activity...

The Fed is playing a very dangerous game here. It was way behind the curve on deflation and economic weakness going into the crash of 2008. Today, it continues to worry about deflation when the clear signs show that inflation is already on the rise.

The Fed and the other major central banks have been planting time bombs all over the global financial system for years, but especially since their post-crisis money printing spree incepted in the fall of 2008.  Now comes a new leader to the Eccles Building who is not only bubble-blind like her two predecessors, but is also apparently bubble-mute. Janet Yellen is pleased to speak of financial bubbles as a “misalignment of asset prices,” and professes not to espy any on the horizon. Actually, the Fed’s bubble blindness stems from even worse than servility. The problem is an irredeemably flawed monetary doctrine that tracks, targets and aims to goose Keynesian GDP flows using the crude tools of central banking. Not surprisingly, therefore, our monetary central planners are always, well, surprised, when financial fire storms break-out. Even now, after more than a half-dozen collapses since the Greenspan era of Bubble Finance incepted in 1987, they don’t recognize that it is they who are carrying what amounts to monetary gas cans.

Today, far too many people put all their faith in deceitful politicians and bankers to tell them the truth and consequently are dreadfully misinformed.

Everyone agrees that the winter just now winding down (hopefully) has been brutal for most Americans. And while it's easy to conclude that the Polar Vortex has been responsible for an excess of school shutdowns and ice related traffic snarls, it's much harder to conclude that it's responsible for the economic vortex that appears to have swallowed the American economy over the past three months. But this hasn't stopped economists, Fed officials, and media analysts from making this unequivocal assertion. In reality the weather is not what's ailing us. It's just the latest straw being grasped at by those who believe that the phony recovery engineered by the Fed is real and lasting. The April thaw is not far off. Unfortunately the economy is likely to stay frozen for some time to come. 

Core inflation, which excludes the effect of food and energy prices and is how every self-respecting economist measures price increases, is up 8.75% over the past five years. However, as ConvergEx's Nick Colas notes, this is a poor indicator for the true cost of living for many Americans. Having scrubbed the data, Colas has found the top 10 items that appreciated the most from 2008 to 2013 and the 10 items that became substantially less expensive, according to the government's Consumer Price Index (CPI). The data is deceiving though, as the CPI's "hedonic quality adjustment" distorts the amount of money people actually spend. Even more importantly, Colas warns, things that have a relatively low weighting in the CPI and that people use selectively – such as healthcare and education – don't have a big impact on the core number, but represent considerable expenses for many Americans. Thus we must use caution when using one figure to make policy decisions for an entire nation, and consider what happens to inflationary expectations if and when the still-sluggish economic recovery finally finds second gear.