THE JANET EFFECT

Here's more on the Fed's new leader and her outlook.

Live blog and video of Janet Yellen’s testimony before a Senate panel

February 27, 2014, 9:53 AM

Federal Reserve Chairwoman Janet Yellen will be heading to the Senate Banking Committee Thursday. Like recent economic data, her previously scheduled appearance was cancelled due to snow. Follow along as MarketWatch’s Greg Robb live blogs her testimony.

• Sort by:
• Oldest
• Newest

• • 8:05 am
  • 
  • by Greg Robb
  • ADD A COMMENT
  Yellen echoes comments made earlier this week by Fed Governor Daniel Tarullo that there are a “few” areas where asset valuations appear stretched.

  She offered the price of farmland as her only example.

  In a speech on Tuesday, Tarullo mentioned farmland, but also added  ”the equity prices of some small technology firms” as an area of concern.

  
  
• • 7:59 am
  • 
  • by Greg Robb
  • ADD A COMMENT
  Yellen added a little bit more to her comments on the weather and the data. She said it would take a “significant change” in the outlook for the Fed to pull back from its gradual reduction in monthly asset purchases.

  The Fed just need to get a “handle” on how much of the disappointing data stems from the cold winter, she said.
• • 7:51 am
  • 
  • by Greg Robb
  • ADD A COMMENT
  More signs that Yellen is open to moving away from having a specific unemployment rate threshold for the first rate hike.

  When the unemployment rate was high, it was useful to have a 6.5% threshold because it meant that the Fed would not hike rates, Yellen said.

  But as the unemployment rate falls below that threshold, the Fed will need to look more broadly to decide when the labor market is healthy enough for the Fed to tighten.

  “Of course, the unemployment rate is not a sufficient statistic to measure the health of the labor market,”  Yellen said.

  She noted the high level of long-term unemployed.

  “As we go to a fuller consideration of how the labor market is performing, we need to take all of those things into account,” she added.

  The unemployment rate hit 6.6% in January.

  
  
• • 7:43 am
  • 
  • by Greg Robb
  • ADD A COMMENT
  Yellen urges Congress to “do no harm” the economy with fiscal policy.
• • 7:41 am
  • 
  • ADD A COMMENT
  So far, questions from the Senate panel have been low-key and of the softball variety. 
• • 7:26 am
  • 
  • by Greg Robb
  • ADD A COMMENT
  “In the weeks and months ahead, my colleagues and I will be attentive to signals that indicate whether the recovery is progressing in line with our earlier expectations,” Yellen said.

  By saying “months ahead” it looks like Yellen is pointing past the next Fed policy meeting on March 18-19.

AROUND THE WEB

History may not always repeat itself, but failure to pay attention is a fool's errand. Here's worthwhile recent blurb from http://dailyspeculations.com/.

It is time honored policy for governments to run up huge debt, then via inflation to pay back that debt in pennies to the dollar or not at all. The most extreme example would be Wiemar republic in the 20s, but there are devaluations all the time, witness Argentina. It is an easy and quiet destruction of wealth of the citizenry by their government. Keynes wrote about it. Though eventually it will work in the US, there must be frustration it is taking so long here. There must be other forces at work holding up the dollar I would call these the positive affects, like the production, innovation, demand for US currency for trade, a slowing of credit growth (second order affect). Amazingly for the time being these forces counter-act a destructive currency policy and there is a stand-off.

Stefan Jovanovich writes:

I think anonymous' point needs further support. Governments have not, in fact, "paid back" debt using inflated currencies. That is one of Keynes' historical fantasies. The debt was simply defaulted. After the new currency was refloated, some of the former debtholders (but never all or even a majority) are lucky/influential enough to be "repaid" by having their old debt instruments swapped for new IOUs using the new "sound" currency; but actual payments that extinguish the debt are never made for the simple reason that the government had no reserves in the old currency and no political ability to make one grand final payment in full. This may seem like a distinction without a difference, but it is not. Default allows the governments to wipe out all the other promises made that were not secured by indentures (pensions, social service payments, subsidies) in the name of "reform". If those obligations had, in fact, been "paid back" in the inflated legal tender, the claimants would at least have gotten old "dollars" that were worth new pennies; what, in fact, happens is that they get nothing.

The rise of the National Socialists can be directly tied to the fact that the currency reform after the hyperinflation left all the old Bismarck safety net promises in default. Hitler's most successful campaign promise was that he would restore those vanished pensions at full value (one can find parallels with the American Progressives' promise throughout the last third of the 19th century and all the times thereafter to assure farmers that they would receive "par" for their crop payments. The just-passed farm bill is a legacy of that toxic doctrine of equalism.)

HOUSEHOLD SPENDING

Here is an interesting read about how American households spend their money that's worth a look.

It turns out there's not much difference between the haves and the have nots
http://www.marctomarket.com/2014/02/great-graphic-disparity-in-wealth-and.html

HELMET TIME

Since 1987 when we first got a taste of "excessive exuberance" king, Sir Alan, to the recent departure of Big Ben, the Helicopter Commander, economic policy at the Federal Reserve has been a treasure trove of material for stand-up comedians.

So the question arises: What can investors look for in the future staring down the barrel of this latest QE-driven big bull market? Though we didn't coin the term, but it's probably appropriate--the Janet effect--as paper assets continue to do well despite climbing the noted wall of ugliness.

Several years ago just before the Rodney King-inspired LA riots broke out, a friend and I went out jogging after work for our usual four mile run. As we headed back into the building ( We had no idea what was happening just a few miles away.), one of the evening janitors stopped us in the deserted hallway with a chuckle and: " It's gonna be helmet time tonight."

And sooner or later it's gonna be helmet time for this market.

CLUELESS

Lots of folks believe the Federal Reserve people haven't got a clue. Even the most perfunctory study of the Fed's history would pretty much substantiate that. It's one of those facts that hit you straight between your financial goal posts. 

Further evidence comes from the recently released 2008 Fed minutes. Trust these guys and gals at your own peril. 
http://www.marketwatch.com/story/5-indicators-to-help-spot-the-next-crisis-2014-02-21

----

SCAMS BY ANY OTHER NAME

Scams are still scams, high tech, low tech, central bank, Wall Street or otherwise.

Look no further than your: "We're from the government and we're here to help you." We'd use the term succor, but that most likely would get us in trouble with the protection police. With the kind of protection we refer to here in the listed link, given a choice, most of us would say: "Protection? We don't need no stinking protection."
http://www.testosteronepit.com/home/2014/2/22/why-the-government-wants-to-shortchange-american-seniors.html

WEATHER

Whether your pocketbook will weather the Western drought that is hitting central California particularly hard is the question.

Much of California cattle is grass fed. The area grows large amounts of pecans, nuts, lettuce and other veggies. See the recent issue of Barron's and here's a link to another reference:
http://www.marketwatch.com/story/california-farm-drought-crisis-deepens-2014-02-22

FRESH AIR

Every once in a while a bit of fresh air blows in from some unexpected source. Here's one that could have serious ramifications should it become fact. Like the old saying: prayer sometimes gets answered. 

Either way it's the first of what could be a volley across the political bows of politicians across America.

Plan to divide California into 6 states gets closer to vote

A prominent Silicon Valley investor’s proposal to split California into six separate states has moved one step closer to getting on a ballot for vote.
The state has given venture capitalist Tim Draper the green light to begin collecting signatures for a petition to break apart the state. Draper, who describes California as too big to manage and essentially ungovernable, now has until July 18 to collect 807,615 signatures for a ballot initiative that could reach voters by November 2016.
Draper, whose bets on Skype and Hotmail have made him a billionaire, says “vast parts of our state are poorly served by a representative government,” according to his initiative.
“It is more and more difficult for Sacramento to keep up with the social issues from the various regions of California,” Draper told ABC News. “With six Californias, people will be closer to their state governments, and states can get a refresh.”
His proposal calls for one of the states to be called Silicon Valley, which would include San Mateo, Santa Clara, Alameda, Contra Costa and San Francisco counties, as well as San Benito, Santa Cruz and Monterey counties.
The other states he’s proposing are Northern California, Southern California, Central California, Western California and Jefferson.
Proposals have surfaced over the years over whether the state should be split up.
“It’s certainly fun to talk about,” Raphael Sonenshein, executive director of the Pat Brown Institute of Public Affairs at California State University, Los Angeles, told the Associated Press. However,“its prospects are nil.”
Even if the measure passes, Congress, under the U.S. Constitution, would have final say on six states. Six individual states would give California 12 Senate seats.

THE TREND IS SUPPOSED TO BE

The tend is supposed to be one's friend, at least in the market.

But much depends on who's setting the trend. A recent report from the left-leaning think tank, the Brooking Institute, about the so-called growing inequality gap between the rich and the poor ain't "so profound or uniform."

With a smidgen of media honesty the same could be said for one of the other big boondoggles of our time, global warming.
http://m.thefiscaltimes.com/fiscaltimes/#!/entry/brookings-study-downplays-income-inequality-gap,530663c9025312186cd40fc5

AT IT AGAIN

Well, we're at it again. Back from the economic wilderness, making some decent gains along the way managing our own accounts. Our format will most likely be a little simpler, briefer this time. We hope some of you will join us.