Fed Chair Janet Yellen is scheduled to make a speech to the World Affairs Council of Philadelphia today at 12:30 ET.
“Markets will be waiting with bated breath to see whether she strikes a more hawkish tone or one of continued cautiousness ahead of the June FOMC meeting,” said economists at Bank of America.
“We will have to listen carefully for her analysis of what definitely is a deterioration of the labor market conditions,” economists at BNP Paribas wrote in a note.
Why listen at all?
Echoing similar sentiment, Joseph Calhoun at Alhambra Investment Partners asks What Now, Ms. Yellen?
Well, that was ugly. The lousy employment report released this past Friday threw the markets and probably the FOMC for a loop. Stocks didn’t really do anything – yet – but other markets more than made up for that minor oversight. The dollar was down 1.5% on the week, all of that after 8:30 Friday morning. Gold was up 2.57% on the week with all of that coming, again, after the Labor Department reported the sour state of the labor market. The 10 year Treasury yield, which flirted with 1.9% early in the week finished 20 basis points lower, around 1.7%, a drop in yield of nearly 6% in one day.
And so once again, the Fed finds itself with egg on its face, hoisted by its own petard of forward guidance. As I’ve said numerous times over the last few years, forward guidance – what other kind of guidance is there by the way? – is only as good as the Fed’s forecasting ability. Which is, sad to say, not very good. Forward guidance has itself become the destabilizing force, a source of volatility rather than a dampener, creating uncertainty rather than providing the opposite. It is hard to believe markets would have had to adjust so sharply Friday if the members of the Fed had just been silent the last few weeks.
If the Fed is truly data dependent, willing to adjust policy only if the economic data supports the notion, then they will be hard pressed to do anything other than sip coffee and eat doughnuts at their meeting next week. It does not require much analysis to see the economy is not hitting on all cylinders and is a lot closer to recession than the Fed can admit. The employment report that moved markets so quickly is but one of many stats trending in the wrong direction. One need not take my word for that. The bond market is a better economic prognosticator than anyone at the Fed or on Wall Street or at Alhambra ever will be and it is saying pretty loudly that the economy stinks. The 10 year Treasury is not trading at 1.7% because everything is hunky dory.
Damage Control
Yellen’s June 6 speech was a last minute scheduling, conveniently placed just ahead of the blackout period in front of the June 15 FOMC meeting.
Just four days ago, most of the world (me not included), thought Yellen would be yodeling the glories of a US economy that had reached “escape velocity” or similar such Keynesian nonsense.
Instead, Yellen will now seek damage control on Fed credibility. The irony is rather remarkable.
“The 10 year Treasury is not trading at 1.7% because everything is hunky dory.”
Indeed:
For further discussion please see US Treasury Bull Market Over?
Mike “Mish” Shedlock
It amazes me how everyone hangs on what the Fed has to say as if they know something we do not. They are helpless to do anything to affect the economy.
Central economic planners from Caracas Venezeula to Brasilia Brazil to Stockholm Sweden to Paris France to Brussels to Buenos Aires Argentina to Chicago Illinois to Detroit Michigan to Stink-hole Zimbabwe have been destroying economies for centuries.
The folks in Washington DC are pulling the oldest scam in the world… again
“It amazes me how everyone hangs on what the Fed has to say as if they know something we do not.”
Here’s why they do:
http://www.oftwominds.com/blogjune16/rational-market6-16.html
“This is the market we have now: dominated by delusional, irrational central planners with unlimited powers to create money out of thin air to fund their manipulations.
The only rational response is to trade accordingly: anticipate constant manipulation, anticipate constant bombastic propaganda of the ‘whatever it takes’ variety, and anticipate massive selling of volatility to maintain the ever-so-important illusion that global risks have been disappeared by central banks and central planners.”
Watching these people (like Yellen) one gets a far better appreciation for what Lenin meant when he referred to similar types as “useful idiots”.
Well, she doesn’t know beans from borscht but she will do what her handlers tell her to do. It’s her default to reflect their confusion.
Who are here handlers telling her what to do?
Agree about handlers, although they’re more subtle. Profilers is probably a better term. She’s been analyzed and is now being controlled although she probably would disagree angrily. Same with Bernanke earlier.
She’s a pleaser. A follower. Lacking the ability to lead in a forceful way, unless slapping down someone who isn’t on her page. A drone of sorts with good communication skills.
The only variable is her concept of Fed monetary management and ammunition needed to do any sort of job. Her potential / possible affiliation with Japanese thinking is the offset.
What are her ‘responsible’ influences telling her? That’s the question.
The useful, well indoctrinated idiots that, after all this, still cling to the idiocy that a central bank is some sort of useful institution.
And not simply an obfuscation racket, designed to cover up wealth and power transfers from the equals to those more so.
As soon as you fall for the nonsense that “we” need to have a Fed, the current one is doing the only thing it can do: Bailing out spendthrift more equals in government, finance and the other leech trades. By squeezing ever more blood out of the ever diminishing population of productive people with something still left in them to be squeezed out.
Her handlers are a complicit chain of corporate banking and financial apparatchiks, and government enablers. It’s opportunist con men, all the way down the chain.
Gamblers are always looking for the “tell” or some other seemingly meaningless clue as a reason to bet. My view is that all things being equal, they are much more inclined to see positive reasons than negative as all they really seem to want to is buy. Any significant and sustained down trend will take them all with it, so there is only one direction…and that is UP.
It is apparent that the IWM & NYA aren’t listening @ ALL!
In the history of civilization – we were the only ones to figure out having a fed to decree interest rates over fiat money is the easy way to prosperity…
Inventories / Sales ALREADY at recessionary level.
And households (with stagnant to declining income) will be facing more (double digit) health care premium increases for 2017.
Consumption will increase with that headwind?
Recession at doorstep … if not already in the house.
Going from depression to low growth doesn’t count as a recovery. It is funny watching the Fed trying to figure out what is going on like a dog wagging it’s tail and wondering why it is wagging. The globe is addicted to cheap money. That won’t end and globalization will prevent further growth in developed markets. The economy is really trapped and has been since the early 2000s. The reason is all growth has been debt fueled with little ability to pay back the debt irrespective of monetary policy.
No question from me that Mish is right about “main street” economy being in deep trouble. But suggesting that a few more years of zero interest rates will fix anything is simply absurd.
Will the FOMC rig 10yr Treasury yields to 1.5%? to 1%? How about 10yr yields rigged to de facto 0% like the Bank of Japan?
Meanwhile back in the real world, these “risk free” bonds are backed by the taxing authority of the (ahem) highly trusted US Congress. Their tax base keeps losing their $50/hr manufacturing jobs (full time), and taking $15/hr Walmart greeter jobs (max 29 hrs/week thanks to ObamaCare). The tax base backing the risk free debt used to be supported by ($50/hr * 35hr) jobs, and those same bonds are now backed by ($15/hr * 29hr) jobs. Middle class taxpayers need to hold 3.5 jobs (at least) just to break even.
Any bond trader that thinks the credit backing of these bonds hasn’t seriously slipped needs to take another hit on their crack pipe.
Treasury supply is way up ($20 trillion > $8 trillion). Demand outside of Fed and Bridgewater hedge fund is flat to down. And the credit support for the bonds has clearly collapsed.
Yields don’t even cover CPI for the “average” urban consumer, much less the average of food, energy, health insurance (which they can’t afford to use because of deductibles), and property taxes like Mish supposedly pays in Illinois. And Treasury yields are taxable.
Failure to even covering inflation (low though it may be) makes Treasuries certificates of confiscation.
Like the dot-com bubble in the 90s or the real-estate bubble popping in 2008 — if you get out of Treasuries at just the right moment, you will have made a bundle. But most people got very seriously burned in the last two bubble pops, and this time is not likely to be different.
Treasuries are very speculative — coming out even (never mind ahead) depends on you getting out just before the crowd realizes that Yellen is full of cr@p. Everyone can’t go through the fire door at the same time — the last person thru lives, the rest of the crowd gets burned.
Every pundit on CNBC claims to have called Black Monday in 87 and the dot-com collapse and blah blah blah. Everyone knew that real estate prices never go down in 2006, and everyone knew real estate prices topped in 2008… yet everyone also got burned BADLY.
Below, please read all the experts who will say they know this time is different. Or that they will be smart enough to get out at the last minute
No question from me that Mish is right about “main street” economy being in deep trouble. But suggesting that a few more years of zero interest rates will fix anything is simply absurd.
Hope that second sentence was not intended at me. Fed (central bank) interest rate policies are part of the problem. Just stating what the Fed is likely to do.
Mish
Mish — no, it was not aimed at you.
Guessing what stupid thing Yellen might do next is financial speculation not investment (since Yellen is guessing, it only follows that Fed watchers are guessing too).
Expecting zero interest rates to actually fix Main Street — which is implied when pundits talk about recessions and job market problems and economic stimulus — that is absurd. Zero rates have been proven (in multiple countries) not to address any of these concerns.
Geopolitical risk in first world economies hasn’t been on most people’s dashboard in decades, but its starting to stir. I can’t predict “when” anymore than the next guy, just saying that demographics and unfunded social promises are going to collide “soon”.
Treasury prices are being set by edict from politicians and central economic planners — not by “tulip mania” markets. That makes them more like “prices” in USSR or Venezuela than Miami condos or dot-com stocks.
I agree with you that Yellen, if she is allowed to stay next year, will screw the US economy to hell. But no matter which person gets elected, I predict the politicians want to stay in power no matter what — and to do that they need something with more credibility than ZIRP forever
“Treasury supply is way up ($20 trillion > $8 trillion). Demand outside of Fed and Bridgewater hedge fund is flat to down. And the credit support for the bonds has clearly collapsed.”
Oh, please … just stop it.
Debt to the public is < $14 trillion … the balance is held by USG trust funds in NON MARKETABLE SECURITIES.
http://www.treasurydirect.gov/NP/debt/search
Foreign demand is up.
http://ticdata.treasury.gov/Publish/mfh.txt
April saw large SURPLUS
"The U.S. Treasury collected a record $472 billion last month, up 14% from a year earlier, leading to a $157 billion surplus for the month. While the U.S. typically enjoys a surplus in April due to tax-filing season, this year’s surplus was $50 billion more than last year’s and the fifth-largest monthly surplus on record."
http://www.wsj.com/articles/u-s-budget-posts-biggest-monthly-surplus-in-seven-years-1431453759
If Janet wants rates to rise, all she has to do is mumble “default” in Bwooklynese.
It’s all too apparent that Janet doesn’t know shit. She can’t even get an early peak at govt data that the Wall Street firms buy with impunity. Therefore, it really doesn’t matter what Janet has to say, because like the boy who cried “WOLF” too many times, when the excrement hits the fan, the guys in the know will have already made their response and have left it to Janet to announce what they already know, systemic failure has set in and the world is going down. Then they’ll watch the lemmings run for the exits while they take a vacation until the dust settles, and then they’ll create all the new money to buy everything they don’t already own. And then they’ll foreclose. That’s when they find out they’ve overstepped their bounds and the people come with pitchforks and AR-15’s to reclaim their place in America, which those in the know will bomb with an EMP bomb driving America back to the stone age while they wave goodbye from their newly secured residences in Singapore or Europe, now living under the protective shield of Russia. Then America will be left asking itself why didn’t the govt spend $20 billion to secure the nations power grid and so dissuade anyone from hitting America with a cheap EMP bomb as we turn to horses and buggy whips… and AR-15s.
Serfs Up America!
Mish –
You missed a perfect opportunity for a Janet Yellen on rate hikes youtube:
Janet doesn’t need to know anything. She owns, and creates all the money. And, as long as central planning lasts, that’s just the way it is. Play, or get washed away.
On another note, isn’t it interesting the attention the Fed gets in all these articles on all these blogs? Must be something to that?
IOW, plan on central planning to continue for generations.
Though the Fed only acts as a clearing house for the redistribution of wealth, imagine what would happen if Con-gress was in control of that function?
Wealth would never reach the point of distribution,,,it would remain “in-house.”
“Why listen at all?”
Yes, why listen at all, to any FED mouthpiece?
They said the market was wrong. They said June was live. They said a rate hike was on the table.
Then they said something different. The FED is gaming the market.
While collecting generous speaker fees way over in FINLAND, Boston Fed president Rosengren said according to Reuters:
On Monday he said a “snap back” from weak first-quarter economic growth was due to “strong” retail sales, which he said was a good omen for broader U.S. consumer spending.
Retail stores in the US had strong sales? Like Best Buy? Or Sports Authority? And all those wonderful new jobs that were created and reported just last Friday…
Perhaps the FOMC members should spend a little more time in the USA. They might get a completely different understanding of how well their centrally planned “recovery” is going.
Mish rates must rise to meet the next crisis or the fed is out of bullets. Sure negative interest rates could be done but I think he rates are headed up for the next QE or crisis. Maybe they do know something we do not!!!
Ok, I will acknowledge that the Fed has made the aplitude of the business cycle bigger, but the root problem is Congress – deficit spending year after year w/o any intention of paying anything back.
Now, a couple of questions:
Who thinks stocks should be making new highs in the face of an economy that requires lower rates that we know won’t help?
If stocks go up for reasons that most don’t understand, why can’t rates?
What if the Fed fears the heat for increasing the wealth gap by continuing to let stocks rise?
What if they fear pension and insurance funds more than the ghost of mandates they can’t control?
The economy is not going to be the reason for increasing rates. It will be the loss in confidence in govt, which Yellin does influence.
Very smart of you to start incorporating your twitter feed into your posts! Brian Gray