CRASH2: As the big selloff continues, why is anyone surprised that the markets doubt the US Fed?

yellenpanic

“Oh shit, you mean I’m Janet Yellen?”

PART TWO OF THE SLOG’S TRIPLE-HEADER ON WHY MARKETS ARE RIGHT & MONETARISTS ARE WRONG

Watching the live coverage yesterday, I found Janet Yellen’s experience of ‘testifying’ to Congress about US Fed policy, by turns, encouraging and hilarious.

Ms Yellen has that irritating contemporary habit of beginning every answer with “So….”, a tic that I associate with evasion – as in:

“So, you asked me a question there I can’t/won’t answer, therefore I’m going to drone on about tools, experience, volatility, soundness in the economy, regulatory frameworks, spaces, hubs, and getting back to you on that”.

What I found encouraging was that she took a mauling more severe than any I’ve seen in Congress over many years….because that tends to confirm what this triplet of Slog essays is saying: that the markets have lost confidence in the central banker’s ability to pull monetarist rabbits from hats.

Yesterday, Janet was the rabbit – frozen in several sets of headlights: so much so in fact, I kept on expecting her to start twitching her nose and chewing lettuce.

What she had actually said in her five minute address preceding the Q&A amounted to liitle more than a gross misuse of oxygen, because it could’ve been covered by three words: “Wait and see”. But patience, after seven long years of corners that never turn, is the main dimension missing from the bourse and banking communities at the minute. The NYSE reacted swiftly to pull back all the small gains it had made during the day.

Fachoi being over, the Asia Chinese markets were open again today. I think it’s fair to say that things didn’t go that well: India was off 2%, the Shanghai dropped but steadied after more PBOC intervention, and the Nickei dropped another 2.3%. Pausing briefly here to look at Japan (the BoJ débacle having been the subject of yesterday’s piece) the Yen is now at 110.2 to the Dollar, and continuing to proceed in the exact opposite direction to that intended at Full Speed Backwards. The BoJ thus continues to suggest to investors that it knows not its arson from its dicky-bow.

But this plummeting confidence is more than just a central banking failure: it’s a crisis of belief – heading for a suspension of belief – in the ability of monetarist tinkering to solve global economic problems. It was clear on Capitol Hill yesterday that Janet Yellen and her Monetanauts cannot seem to see that they’re beginning to look like Monetanoughts: what they spend is followed by several noughts, and comes to nought.

This was particularly obvious when the Fed boss was asked about negative interest rates à la Tokyo:

“The Committee has looked at this in the past as a policy option but has yet to see the circumstances in which such a strategy would be appropriate at this point in time however we never rule anything out and continue carefully to look at all the data which might be germain to this approach”.

Given that the BoJ’s Nirp has created a safe-haven currency when what they needed was a rock-bottom export booster, Ms Yellen would’ve evoked more calm had she simply said “No”, rather than continue depleting the Earth’s atmosphere. But of course she didn’t. Another brief pause here to note that Sweden’s bank has now followed Abe’s lead by cutting its rate to 0.5%. I struggle for an analogy to this action, except to suggest that it’s like having a lemming on Twitter called Cliff Jumper with a growing number of followers.

“Is this the line for Suicide Leap?”

“Yes it is”.

“Thank you”.

Why should any open-minded investor have a residue of faith in the US Fed? Or more to the point perhaps, are those investors beginning to catch on to the fact that central banks only care about, funnily enough, other banks? This suspicion was aired several times by aggressive legislators on the Hill yesterday:

“You know madam, I’m sittin’ here lookin’ at you, and it might jess as well be Alan Greenspan thirteen years ago”.

“Why do you give favourable rates to certain banks Ms Yellen?”

“Why has not one single senior banker in this country gone to jail, madam Chair? Surely you could supply evidence to the authorities to put several of them behind bars?”

“Your community has brought this country to its knees, and yet when I issued a subpeona to you a year ago on disclosure, you still haven’t complied. Is the Fed now above the law?”

Ironically, these doubters may be reflected among the smarter investment specialists out there who can see the mood shifting away from restrained tolerance of investment banking. While the bourses run red with blood around the world, it is the banking sector itself that’s getting the most severe caning. On one business station this morning, a talking head who looked and sounded like he might have voted Stürm Abteilung in New Hampshire casually observed that, “We are telling our clients that they should not be in the banking sector at any price right now. This rout may have no discernible bottom”.

I was talking to a couple of people in the markets earlier this week, and they had a parallel view: it was, they felt, a sense among investors that bankers themselves are equally worried that the CBs are carrying around disturbingly light tool bags. I had to agree…but then I was as ever left wondering whether that many bourse movers and shakers are any better informed about which way round the seabed and the sky are.

For example, they’re seeing the Yen as “a safe haven”. Why? Japan has the biggest debt and the longest intractible recession of any nation State in modern history. If it’s a safe haven, then what is it safe from, elks falling from the sky? Will it feel a safe place for your money the next time it needs to attract debt-bond holders, and goes with the hard-sell of charging them for the privilege of lending to the Sons of Nippon?

The problem with monetarist ideas is that they’re all which-shell-is-the-pea-under financialised tricks, not real economic solutions. This too the markets seem to be factoring in: we’re now at Correction3 of Crash2, and all the Davos fatties can say is “the data don’t support these valuations”.

We may be quite close this time to the first mega-correction. This is the tale of woe as at 10:45 am CET Thursday 11th February:

redsea11216

The Dow figure is of course last night’s close: it had been at +1.4% until Yellen spoke, which just goes to show you what a brilliant radiator she is. But the futures for both S&P and Dow are around -1.8%.

Perhaps this is a pivotal moment, perhaps not. The Fed isn’t going to say anything of significance now for over a month, but the mood is worsening. And Count Dragula at the ECB is not due to exit his coffin again until March 10th. Four weeks without anything in the way of a calming influence is not what the doctor ordered.

Part Three in this series tomorrow looks at the European Central Bank. It isn’t going to be a fan letter.

Connected from a recent Slogpost: Economics starts to reset politics in the US and EU

21 thoughts on “CRASH2: As the big selloff continues, why is anyone surprised that the markets doubt the US Fed?

  1. Hong Kong is open today -3.85& and -35% from last year’s peak but Shanghai is closed all week for the Lunar New Year holiday. Opens next Monday.

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  2. “Part Three in this series tomorrow looks at the European Central Bank. It isn’t going to be a fan letter.”

    John – is it troo that the Red Shields own the ECB?

    There is something in the air. Huge changes are upon us.

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  3. “it’s like having a lemming on Twitter called Cliff Jumper with a growing number of followers.”

    Hot tea all over my keyboard! 8^D… 8^D… 8^D… 8^D… 8^D… 8^D… 8^D … “Thank you!”

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  4. I read somewhere that the reason the yen is increasing and the dollar falling is because there were a lot of derivatives taken out against the yen which are now being frantically unwound. The transactions have to be settled in yen, which means ironically selling dollars and buying yen. I would suppose when the unwind finishes the yen will collapse?

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  5. Can’t fight primary reality. if the wind stops, you have to keep blowing to keep that feather up. I am in no way complacent, but as the bubble of total internal reflection, that is the “market”, starts to deflate. Probably the fundamental belief model for most who visit here. Have you ever considered the consequences?

    I’m waiting for the successive pops from the deep inside towards the last BoTIR, as we flow back along the route we toiled hard on, to get here. Might be worth a little contemplation if you wish to comment. This, the bubble of Interwebedness is close to the centre. Think on…

    Yours simply,

    ME

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  6. “Yesterday, Janet was the rabbit – frozen in several sets of headlights: so much so in fact, I kept on expecting her to start twitching her nose and chewing lettuce.” – Priceless :-)

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  7. So (!), I’m going to have another go at comprehending this complex subject. I have taken on fractional reserve banking, derivatives have got something to do with betting and strong currencies are bad for exports. The world is run by giant corporations who only care about profit but everyone except them is running out of money. I once read that crashes usually happen in the autumn. Can anyone be bothered to explain why? And if so if this present turmoil is likely to hang on until then?

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  8. don’t bother to learn about any of it jackie.. is all going west as all ponzi schemes do. Its a con trick that is now over.. non of us will be left with anything.. probably..

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  9. come on people, she DOES NOT WORK FOR THE AMERICANS, PERIOD, SHE WORKS FOR THE ROTHCHILDS PERIOD, and what rothchilds wants she gives, the fed is owed by the rothchilds, period, end of story

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  10. In a part a reply to Jackie & an honest question about a much hated man. I’ve grown to distrust the opinions of the media, the politicians, the experts & the banks, most institutions, to be frank, & that’s why I’m, annoyingly or not, here.

    I therefore tend to be quizzical about anyone these self aggrandised pillars on the modern word revile. So here goes.

    This Book any good?
    Is it worthy of the reading time? (mid 50’s, Dyslexic, Economics none literate, bright)
    Does it help to explain anything about the current maelstrom?

    http://www.a-puntes.net/arc/VAROUFAKIS-the-global-minotaur.pdf

    I must admit I get some comfort from his Spoke like precision, but a lot of stuff looks that way if you are deficient on informations.
    I saw this Quote on a live blog at the time of his departure from his ministry, that struck me as some degree of respect from those at the “Market Face”:-

    “”View from the trading room floor

    “The Greek bloke’s resigned. He’s run rings round ‘em.”

    That was how one IG trader was overheard explaining the news of the resignation of Greek finance minister Yanis Varoufakis following Sunday’s referendum, as he chatted on the phone in early trading this morning, writes Simon Goodley.”

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  11. You’re always dancing round the questions
    With your soup plate eyes
    And every committee that you meet
    Doesn’t get the real replies

    Here she comes again
    When she’s fibbing ‘neath the Stars and Stripes
    She gives the gyp
    Here she comes again
    When she’s mumbling ‘I’ll get back on that’
    You kinda want to leave the ship

    She’s the Fed’s best girl
    She’s the Fed’s best girl ah urh ah urh
    And she’s full of bull shine.

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  12. I heard Adair Turner (former head of the FSA) on the radio yesterday (or day before). He said it would be unrealistic to think that the taxpayer would not be called upon again to bail out the banking sector in another crash. Disturbing – we are being fitted up once again!

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  13. Pingback: CRASH2: Como Tricky Trichet e Draghi Devious transformado um cavalo lenta numa «InvestmentWatch burro morto | HISTÓRIA da POLÍTICA

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