Yellen reverse sets market afire, for now

Janet Yellen needed medical attention while giving a speech Thurs. night at U-Mass Amherst.

The Fed chief complained about being dehydrated and appeared to have difficulty finishing her speech, with disturbing pauses and having to re-read passages.

At the end she said “Let’s leave it there” and was assisted off the podium, and was asked “are you alright?”

Yellen attempted in her speech, to reverse her comments last week and to let the markets know the global economy was not in as bad a shape and she let on and that the Fed was still looking to raise rates this year. All total blather, since global growth is slowing to a near standstill and the Fed will not be able to raise rates this year.

However it appears to have worked in the short-term as equity futures are up and Asian and European bourses are all trading higher.

The Vice Chair of the Fed is Stanley Fischer, the former central banker for Israel. Fischer would take the lead should Yellen not be able to continue as Fed chair.

And although the Fed has said Yellen was better after the speech, we will have to wait and see on that.




The real deflate-gate saga

Tom Brady’s football was better inflated than this global economy.

Every day this week we have seen a sovereign nation cheapen its currency.

Russia today cut its interest rate by 2 percentage points to “ease” inflation fears. Not sure how a rate cut can subdue inflation, but leave that as it may.

Since the Swiss moved the franc off the euro peg, 10 countries (I may have missed one so forgive me, but its the trend, not specifics) have altered monetary policy to alter their currency.

There is not a major economic power on this globe that is seeing inflation fear. The deflation stagnation spiral is rearing its head across the globe as growth continues to slow.

The price of crude is the first indication of slowing growth. It has little to do with a glut of new sources coming online and everything to do with lack of demand.

The US 10-year note at 1.7% yield is low because we are the “cleanest dirty shirt”? No we are the high on the street. Germany, UK, Japan are lower in yield. Even Italy, Greece and Spain are lower.

The US GDP for Q4 2014 comes in at 2.6%, which means for all of 2014 the economy grew at 2.4%. That’s pretty anemic given the amount of funds injected into THE BANKS, not the economy in 2014.

There is far less likelihood that the Fed can move off the patience platform anytime soon given a holiday quarter at 2.6% after QE4 wound down. No escape velocity to this number. US can’t stand on its own without ZIRP.

State of the Disunion

Knowing of course that President Obama’s State of the Union speech last night was constructed to be more pep rally than a true accounting, I am still scratching my head over his assertion that 2015 turns a page economically for the US.

The president spoke in broad terms of how the US has come back after 6 years of malaise and that job growth and higher incomes were here for the middle class family.

Neither is true based on government data. Household income is flat and unemployment is flat to slightly higher than a year or two ago. The number of people in the workforce — or the denominator in the unemployment rate equation is far lower than 4 or 5 years ago, so the rate falls.

The labor force participation rate is now 62.7 percent, which is down from 65.8 percent six years ago.

The president even pointed to the Dow Jones industrial average as an economic barometer of how well America is doing.

Surely his economic advisers know a doubling of the DJIA has zero to do with anything coming from the White House and everything to do with Fed chiefs, Ben Bernanke and Janet Yellen, and QE programs that bought toxic debt from the banks, which freed up capital to be deployed in the markets.

This capital was ring fenced into the markets, so the Fed could contain inflation and the velocity of the $4 trillion hand out.

So when the Fed complains or worries about stag or disinflation, it’s a bit disingenuous, because Yellen could simply allow the banks to deploy the capital as loans to both business and personal to get the economy moving. That is how to get velocity up.

Anyway back to the SOTU,  if it is “morning” in America — to borrow a phrase — why are so many families “mourning”?

The president asserted 3 million new jobs were created in 2014. He didn’t say full-time jobs, he said jobs, which is supported by the data.

More Americans are working at part-time jobs than they were 6 years ago. Many of these jobs require the worker to say, “You want fries with that?” or “Welcome to Wal-Mart.”

If you look at the U6 jobless rate, which includes “marginally attached workers,” discouraged and part-time workers who want full-time work, that rate is nearly 11 percent

There are no benefits with these jobs and generally no future. That the President is touting as an accomplishment.

Quickly, two other real economic milestones that were not mentioned, but can be used as indicators of where the US is going.

  • The yield on the 10-year note is 1.7 percent. Using that yield as an indication of growth in the economy America has that a sub 2 percent gross domestic product. Not an indication of a robust economy, and far from the 5 percent blip printed in Q4 2014.
  • Gold prices have moved to record highs in yen and approaching all-time highs in euros. Gold moved past $1,300 this morning. another sign that its more “mourning” in America than not.

SOTU be damned.

The short note

As the Washington pols act like a pack of ‘Tween girls fighting over who is not talking to who about what and the shutdown goes into its second week, a big problem is developing in the short note.

Yields on short-term Treasuries and Bills are shooting higher on the threat that default will hit this paper first and hardest.

Today corporations can borrow short-term paper cheaper than Uncle Sam.

One-month LIBOR is at 0.17 percent while the one-month Treasury bill is trading at 0.26 percent. The liquidity providers — institutional money — may chase better returns knowing the US will make good and pull out of buying short-term commercial paper.

This short paper squeeze, which is used by many corporations to fund day-to-day operations was the scenario that was the cause for the TARP bailout.

Cratering stock prices be damned, if the commercial paper market is squeezed on yield, then publicly trade companies will be showing up at the Fed window again in order to make payroll, pay vendors and roll over shorter duration notes.

This can all happen sooner than next week, look for 0.35 1-month T-Bill to be the line in the sand for the first shoe to drop perhaps as early as tomorrow.

No Dimon Jubilee

As the US stumbles into the new week of shutdown and futures this Monday morning show triple digit decline on the Dow Jones, there is still no word on JPMorgan’s global settlement for crimes against individual investors.

The shutdown may have a smaller effect on the SEC than most other federal agencies, due to the fact that they are somewhat self-funded, through the  surcharge they get on every trade made.

Still we are a week out of JPMorgan’s CEO Jamie Dimon being “perp walked” down to Mary Jo White’s offices for discussions on what charges will and will not be included in the settlement and whether criminal charges will be brought against the firm, ala SAC Capital Advisors.

News late last week came out that Dimon had relinquished his role of chairman of the JPM banking unit on June 30th of this year was met with tepid coverage, despite it signalling a thwarted attempt at appeasement to shareholders and regulators over the Whale trade.

Given the new SEC stance on admittance of guilt when settling charges, the delay could be in language over who will admit to wrongdoing. The company for sure, but are the feds — including the Dept. of Justice as well as the SEC — looking for Dimon’s scalp?

A thought could be that JPM’s head of commodities, Blythe Masters, may be the sacrificial exec the feds will take.

Not sure anyone in Washington wants to see a neutered JPM leadership as we slow march towards debt crisis.

Treasury and the Federal Reserve might need familiar faces around the conference table on a Sunday morning in the near future to help settle cratering markets as the ceiling comes down.

So figure any announced settlement will come after the debt ceiling crisis is resolved.