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Business/Finance See other Business/Finance Articles Title: Janet Yellin is a VERY Flixible Woman At 68 years old, Janet Yellen is a very flexible woman. So flexible, as you’ll see in a moment, that it’s difficult to ever know which way she’s about to bend. But first, a glance at the stocks market’s ascent. The S&P 500 is sitting pretty this morning, at a lofty 2,114 points. Last year this time, the index was at 1,847. That’s a gain of 14%. If that patterns holds, we can expect a level over 2,400 by next February 2016... or much higher! When credit expands enough, anything’s possible... and disaster’s probable. And here we are! Seven years after the financial crisis, 90% of interest rates across the industrialized world have belly-flopped to zero, and, in many cases, crashed through the floor and into the basement. Something tells us that if, by some marvel, markets are still intact seven years hence, the remaining 10% will have long drank the “ZIRP” Kool-Aid too. Unexceptional times call for exceptional times monetary policy. That’s what Janet Yellen stumped for on Capitol Hill today. It was time again for the so-called Humphrey-Hawkins hearing. The Federal Reserve, she carefully explained to Congress, is like a hermaphrodite. It could go either way. Not that we watched her testimony. We skimmed the “CliffsNotes,” instead. That is, we looked through Janet Yellen’s stump speech… and then translated it into the exact opposite of what she said. Yellen: “It continues to be the FOMC's assessment that even after employment and inflation are near levels consistent with our dual mandate, economic conditions may, for some time, warrant keeping the federal funds rate below levels the committee views as normal…” Translation: “Read my lips: The only rule we live by is that there ain’t no stinkin’ rules. We ain’t got no clue what we’re doing, what we will do or why we did what we’ve done already. And if that changes… well… we’ll let you know. Ditto if that change changes thereafter. Capeesh?” Yellen: “We have been watching closely the recent volatility in global financial markets. Our sense is that at this stage, these developments do not pose a substantial risk to the U.S. economic outlook. We will, of course, continue to monitor the situation.” Translation: “Guys… guys… watch what I’m about to do to stocks righttttt… now.” Yellen: “Once again, it’s the FOMC's assessment that it can be (ahem) patient in beginning to normalize policy…” Translation: “Can I be frank? OK, here goes. I didn’t think you guys were actually going to hold me to it when I said we’d normalize rates midyear. I mean, this is a seriously sticky wicket. Like double-faced tape sticky. Don’t get me wrong. If it was up to me, I’d just flip a coin and be done with the thing. But then ‘audit the Fed’ would be the least of my worries, wouldn’t it?” Heh. “By the time that the Fed indicates they'll raise interest rates,” opines one reader, stepping into Janet’s pantsuit, “new unemployment figures will have been collected and published, showing that unemployment is back on the rise. “This is a natural consequence of low oil prices, which are affecting the shale oil fields, which seem to be responsible for the bulk of the new jobs that brought down the unemployment rate to within the Fed’s target.” Low energy prices are deflationary, too, making it even harder to raise rates. “The consensus thinking,” explains Chris Mayer in a Mayer’s Special Situations alert, “goes that you cut rates to stimulate the economy and boost inflation, when, in fact, lower rates on government securities simply mean that the private sector earns less income than before. That means less money floating around than there otherwise might be. And that is hardly inflationary. “True, people can now borrow at lower rates, but it’s no cinch they will choose to consume more. Even then, their gain is offset by the loss of income to savers and creditors. In a deflationary chill,” Chris concludes, “interest rates are heavy and sit low in icy waters.” Thus, don’t bet on rates going up anytime soon. And have some cash on hand. “Cash reduces volatility,” explained Jim Rickards during our last Strategic Intelligence briefing. “It’s the opposite of leverage. It gives you optionality. The guy with cash can go out and pick up the bargains. “You can be like Warren Buffett. He’s sitting on $55 billion of cash -- the most cash he’s ever had. He’s waiting for a catastrophe. If you have some cash, you can be like him and go bargain hunting in the wreckage.” If you’re unconvinced, our co-founder, Bill Bonner, provides a more practical reason, below. “Our financial system,” he writes, “could take a surprising and catastrophic twist that almost nobody imagines, let alone anticipates.” Read on... Cheers, Peter Coyne for The Daily Reckoning Post Comment Private Reply Ignore Thread
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