Jump to content
Sign in to follow this  

Jackson Hole Yellen Statement

Recommended Posts

I agree with that  no reason to think Yellen with change the habits of a lifetime...  USD bull won't reemerge until the black swan moment,  NFP anyone?  My firm believe is that soon the markets will be taken out of the influence sphere of the central bankers and something like NFP may be the harbinger of that. 

Share this post


Link to post

Hi 

Maybe she'll say the moon is made of cheese, who knows? And there are probably some speculators who would immediately try to analyse that statement for dovish or hawkish leanings. I've read that some analysts count up the positive type words in her speeches like 'encouragingly' or 'improving' and weigh them against the number of negative ones such as 'disappointing' or 'unclear' etc. and then try to draw conclusions about the future direction of various markets.

I notice in the article you posted that 50% of respondents expect a 'hike' to be mentioned (so 50 % don't!)

Or that 50% expected Emerging markets to be main gainers gain (Or that 50 % don't). All depending on the 'tone' or 'flavour' or use of certain words.

To be honest I find it all a bit comical :smileyvery-happy:

 

Share this post


Link to post

Hi  & . You are right , counting up the pro and con words and phrases is exactly what the commentators (and punters) do, but the reason they do that is that when rates do move there is a god almighty scramble and if you have real money you don't want to be left behind as it will cost you dear.

Forward guidance has become something of a joke as they seem to frightened to do anything.

What goes up also comes down, US employment and US indices have been going up for a while now. US stocks are propped up by QE,  solid company stocks encourages high employment. QE is now an integral link in a triangle of mutual support (QE, stocks, employment) and cannot be taken away without dire consequences to the whole, but presumably it must end sometime?   

Share this post


Link to post

Yeah we may find it amusing, not to say ridiculous, but that is the world we live in just now.  No one really knows the triggers for crashes or corrections, even in hindsight they are often not that obvious or perhaps the obvious is not the trigger.  The salient point, however, is that sentiment changes.  The very fact that people are hanging on every minute turn of phrase of the Fed et al tells you this will not last and that the end must be near.  Indeed it is my belief that the crash was indeed on April/May 2015 but got forestalled by more central banker policy.  It doesn't help that pension funds are required by mandate to keep buying so-called safe assets, that the casino banks and hedge funds have too ride the bull out or investors will pull their money and that the likes of the BoJ are effectively nationalising the Nikkei.  It is all a self fueling Ponzi to me but at some point there will simply be no buyers left, the thing will have gone too high for anyone to justify a buy and then look out below.

 

Fortunately not all markets are like this.  Commodities have already crashed and have more to go I think and FX is all relative rather than value based.  Once you can avoid the whiplash of central bank releases the trends can be deciphered.  Until the stocks and bonds crash happens I am focused on these other (more sane) markets but when the crash begins...

Share this post


Link to post

For those of you not following the Oil thread I thought you might also enjoy this.  It is in the context of comical politicians/central bankers believing their own BS!  It will end and will end badly!

 

There will be many books written about these time.  In a way we are fortunate to be witnesses this time.  I remember the post 1980s recession but was too young to observe the factors leading up to it.  I am reminded of the sheer arrogant hubris of Gordon Brown declaring that the Labour party had changed the course of economic history - "no return to Tory boom and bust" he said and then there was a bust!  The markets and the economy have a way of taking care of such hubris as Yellen, Kurado, Draghi and Carney will discover and their political task masters.  Until then we have to be patient and carefully mange our risk and protect ourselves and families against the worst of the impending carnage.  The real problem is that no one wants to hear it, talk about cognitive dissonance...

 

The attached You Tube clip is too funny!

 

 

 

Share this post


Link to post

Quite ironic when the media and the public question as to why people question why the likes of Trump and Brexit had and may potentially occur, and once again you can blame QE. QE has benefited equities, and for those who already sitting on them would have benefited greatly, I have no issue with that personally, but from an economic standpoint this raises the question, are we going to see and reep the benefits? As stated in the oil thread post, creative destruction is an essential part of economics, out with the old in with the new. Had we seen the appropriate bankruptcies in the commodity market, we would have seen a rebalancing much long ago, but once again cheap credit comes to the rescue, with partially self-imposed austerity measures. But now  that their is a glimmer of hope for the debt ridden companies, why would they plan to add mass amount of individual workers to their payroll, why would you? you come this far, lol. Not to mention, you now have the problem that investors expect a better even more unrealist return on their investment, (the pressure really mounts then). And the same example applies from countries, to companies both big and small and finally households, (almost describing thatcher's model of an economy is much like a household) lol. Had Greece been aloud to go bankrupt, the euro currency would probably be in a better place or if they had the drakma the same policy that the IMF imposed on Thailand, would have been used for greece, but politically, once again, this was not aloud due to the overall aim of Europe become a superstate. Therefore if everyone is hoarding money, fearing liquidity drying up, example US  hiking rates, then best take advantage of low rates and QE money and store it. But when the CB's find out, answer more QE, rate cuts and now helicopter money on the cards in Japan (thanks very much, I will store that cash too).

This is why their is some heavy scepticism as whether we will have higher us rates. It is all political, even though they deny this. If liquidity does dry up in the US through higher rates, their are plenty of other countries dishing out cheap money and this is another risk, of which could further add fuel to the fire and demonstrate that globalisation is an issue. If you want to blame the individuals for the US delaying the hike in rates, just point the finger at the central bankers of Europe, Japan and most recently the UK. All this because of QE. However as stated before in the past, had their been a coordinate debt right down by the top G7 countries, then we could make some progress. Will this happen, only, most likely, when their is no more QE left, and no more rate cuts possible. And if the EU fails, high chance the first to bail out of the union, will be Germany, in-fact I would place a binary bet, if such an event came close to happening.

Quite an interesting short video on QE and inflation.

The world DEBT is 137 trillion world wide debt, vs 68 trillion in money supply. Maybe the annual forex revenues may be useful in paying of this debt, jokes.

Share this post


Link to post

Yes   poor Yellen is in a tricky position. She must raise rates before the next recession but not cause the next recession. Oh dear.

Share this post


Link to post

Tricky?  She is in an impossible position.  A recession will happen and she will be blamed, as will all central bankers and in a way quite rightly but they didn't cause it they just made it worse.  Alas for them people are stupid and must have someone to blame other than themselves...  And politicians will be all too eager to pass on that blame to central bankers.  Poor ol' Janet must be praying night and day that The Donald doesn't get elected President...  She might not simply get fired!

 

Speaking of the Donald, I saw an interesting documentary recently the upshot of which was that the Donald may be closer to Clinton than the polls are suggesting and that online only polls are more in his favour.  This is a bit like the Brexit thing whereby people didn't want to actually tell a pollster on the phone that they were leaning towards the non conformist choice, and we all know what happened there...  All of which brings the heretofor unlikely result of The Donald actually becoming President!  Now what would taht do for the markets I wonder!  Dive! Dive! Dive!

Share this post


Link to post

Speaking of THE Donald, you are now repeatedly hearing individuals mentioning that QE is responsible for not only low growth, but also the rise in these populist parties in Europe. But the previous recession was very unique and as said before a lack of credit availability can have serious devastating consequences. But as you pointed out in that article Mercury, is that Yellen has allowed herself and her team to become hostages to Wall street. The other problem is that they are on a different platform to everyone one else. While she wants hikes, or plans at least, every other Central Banker is contemplating the opposite of either maintaining neg rates or cutting them further. If however everyone was on a similar platform of course, the markets in theory only, could not attack any of the major economies, if coordinated. But again will this happen, most likely not. You also  do question how much Europe and Japan are heavily wishing for higher rates in the $, so their own currency depreciates. 

But I do doubt seriously rates will rise until at least after the election, after all what happened in Britain in relation to Brexit, just shows that their is a very strong possibility that Trump could indeed win. The man who is against Globalisation, or at least he preaches that.  

Share this post


Link to post

Hi  

You know, I half hope Mr T does become president, just for the comedy factor of course. His barnet alone is priceless.

It would also be interesting to see how much of his rhetoric he would actually be able to put into practice with not only Democrat senators/congressmen opposing him but many of his own party too.

 

Meanwhile, I've taken out a large short on Lunar Surface Titanium Futures - just in case Ms Yellen does say the moon is made of cheese. (Also long on Dairylea [DYLE] for good measure :smileyvery-happy:

Share this post


Link to post

And doesn't his situation remind you of Corbyn?  Obviously polar opposites in terms of politics but otherwise the same.  I wouldn't mind the protest vote gaining sway to clear out the ***** and hit the rest button but alas it is not just about social policy and the economy it is also about security and defense.  I mean can you imagine if both Trump and Corbyn had control of defense...

 

Never mind Lunar titanium future I'd be investing in the Lunar housing market...

Share this post


Link to post

Corbyn, Trump, Lapen in France and Putin. Now that would be quite worrying. With Trump, you will find the US at war with 3-5 different countries at the same time probably. if Corbyn wins be prepared to work in the rice fields and not ever own your own home, a car, probably not even your own clothes with his Marxist attitudes. With all those political fools, the only thing we will end up trading is Chicago, sugar, coffee and wheat futures, if we can raise enough capital that is.

Share this post


Link to post

Bill back in the White House?  The scandal columnists would love it!  Buy shares in media...

Share this post


Link to post

Agreed  - there does seem to be some uncanny parallels between Mr T & Mr C's political situation.

Both have plenty of support from the larger party membership and public and yet in the main are disliked by their colleagues in their party's inner sanctum. What this says about the attitudes of MPs &  Senators compared to those of the people they (supposedly) represent is a bit unclear but there is certainly a widening divide.

On the other hand, there are the huge differences you mention too - Trump's attitude seems to be "Tell 'em what they wanna hear and I can be Emperor!" Whereas Corbyn's is more "Tell 'em the truth and maybe they'll love me"

Personally I don't believe either would make a good leader's of their countries and likewise, neither would be good for markets.

As for defence - that's a bit scarier! Corbyn would probably be inclined to foolishly trust our enemies, believing in mankind's better nature. On the other hand, Trump would thumbing off the safety catch at every squeak of the international floorboards.

 

Share this post


Link to post

I agree re Trump/Corbyn as leadership material but consider the alternatives:

  • Clinton/Saunders?  Ted Cruz? in the US
  • Owen Smith in the UK?

I had thought a while ago that "allowing" Corbyn to be leader of the Labour party could be a ploy to let the people see a train wreck and then step in and pick up the pieces.  Now I wonder if Smith even wants or expects to win vs Corbyn.  Maybe what he is doing is to ensure he does not win, which will give him the air cover to lead a split.

 

By comparison Theresa May look positively Churcillian... 

Share this post


Link to post

Recent Yougov poll showed 30% Labour supporters thought May make better PM than Corbyn.

Aug vol chart in FT.

 



Share this post


Link to post

I think within this Jackson Hole, statement, we may be hearing plenty of talk on getting inflation to 2% before rising rates. If the US does keep getting good employment figures, but equally important better wage growth which increases purchasing power, then they will be getting closer to their inflation target.

 

US UNEMPLOYMENT.gifunited-states-inflation-cpi.png

united-states-wage-growth.png

Share this post


Link to post

An interesting article found on the FT alphavile, which explains some of the history over the past 200 years since the industrial. revolution. Interesting how he discusses how higher wage growth leads to boom and investment as well as greater redistribution of wealth. But because of Globalisation, the problem becomes when wages can be cheaper outside the economy of which alternative measures have to come into play. Because emerging/3rd world countries became more stable and business friendly during the 70s, companies saw the opportunity for cheaper labour costs. Cant help question, had the US not tried to eliminate communism, we may not had this problem with globalisation, but then again we may have had war. That is the price of having peace in the world.

Really worth reading. PS text below explains the chart.

Koo-LTP-labor-supply-demand-curves.png

For most of human history, technological progress was achingly slow, especially when it came to agricultural productivity. Unable to boost yields, populations couldn’t expand unless additional farmland were brought under cultivation. There were about as many people alive on Earth in the age of Caesar as there were more than a thousand years later. When that finally changed, farmers moved to urban factories and joined the proletariat.

(This wasn’t necessarily because life was better in the city — government policies penalising subsistence farmers who had previously lived off commonly owned land also played a significant role.)

For whatever reason, the expansion of the urban workforce was a boon to the limited set of investors and entrepreneurs looking for labour. The flat line between points D and K on Koo’s chart represents the power employers had to hire additional people without raising real wages. The cost of expansion was low and the returns were high. As industry grew, the returns to capital expanded from the triangle BDG to the far larger triangle ADH, whilst the total income of workers expanded from the rectangle DEFG to DEIH, reflecting nothing other than more people working for the same meagre wages.

(Now would be a good time to re-read Cardiff on “Engels’s pause”.)

At some point, however, the ample supply of farmers was extinguished and companies became compelled to boost wages if they wanted more employees to expand production. This is point K in Koo’s chart, which he highlights as the Lewis Turning Point. From this point forward, the “labour supply curve” kinks up. Additional demand for workers doesn’t just increase the number of workers but the wellbeing of people who are already employed. The surplus expands dramatically from the rectangle DEJK to the far larger rectangle CEML. These workers also have more spending power, which encourages companies to produce more (and hire even more people).

Investors might reasonably sacrifice some of their share of the economic pie in exchange for higher absolute profits, but there is a limit to paying higher labour costs out of margins. The combination of sharply rising consumer purchasing power and the need to preserve margins therefore leads to a both a boom in investment and a redistribution of wealth and income towards the proletariat.

Other consequences of this new world include greater vulnerability to inflation and greater economic sensitivity to changes in interest rates, because capital is relatively scarce compared to the previous period.

So far, none of this is new or original to Koo. The key bit is the right-most third of the chart, which describes what Koo calls the “pursuit from behind” (our emphasis):


As wages continue to rise, the economy eventually faces a widening competitive gap with overseas economies. There are two main patterns here—one in which excessively high domestic wages prompt businesses to consider using cheap foreign labor, and one in which the growth in domestic wages is more modest but overseas economies become more competitive.

It was in the 1970s that the developed economies of Europe and the US first encountered this problem in the form of a newly emergent Japan…The Western economies then entered the third stage of economic development—that of a post-LTP “pursued economy.” In this stage the labor market once again undergoes major changes. Companies that had engaged in intensive capital investment to raise the productivity of domestic workers and until then had never considered moving operations overseas are forced to ask themselves whether domestic or overseas investment would provide a higher return on capital.

When the answer is that overseas investment would produce a higher return, domestic capex is likely to decline, along with domestic employment. That weighs on domestic wage growth, and companies that had invested intensively to boost productivity based on the assumption of ever-rising wages may now reconsider.

Once an economy goes from chasing to being chased, the capital investment that had been carried out to expand production capacity and enhance productivity falls sharply, resulting in a corresponding decline in corporate demand for funds. From a workers’ standpoint, these changes mark a sudden end to the “pampered” world in which businesses actively invest in facilities and equipment to raise workers’ productivity, thereby enabling them to pay employees high wages…In the context of Figure 1, this represents a flattening of the labor demand curve from D3 to D4.

Consider recent history.

Contrary to conventional accounts of the early 2000s that focus on the shallowness of the recession and the seemingly modest increase in joblessness, the US tech bust had severe consequences for domestic private investment and private employment.

The excesses of the late 1990s — and the massive losses imposed on investors as a consequence of those excesses — certainly explain some of the retrenchment, but Koo’s argument is also important. Economists have found the impact of increased trade competition with lower-cost producers, most obviously China, had long-lasting and devastating effects for a significant swathe of the rich world. (Related – the chart that explains the world.) Whilst the impact was temporarily obscured by a credit bubble, even that unsustainable stimulus was insufficient to raise real median incomes above their level in 2000 by the eve of the downturn.

Koo again:


Once the golden age ends and the economy is being pursued by competitors, income growth starts to stagnate, and the domestic market is hit by a flood of cheap imports. Consumer behavior then undergoes changes that are just as large as those seen in the labor market, with people demanding products that offer more value for money.

During the golden ages in both Japan and the US, for example, it was common for households to buy a new car every two years. Such behavior quickly disappears in a pursued economy, and consumers become much more careful about the products they buy, demanding tangible advantages.

In the US this shift led to the emergence of huge discount retailers like Wal-Mart and Costco, while in Japan it was reflected by the explosive growth in so-called 100-yen shops. Initially, many consumers are reluctant to visit such stores, worrying that others might think worse of them for shopping at a discount emporium. But this resistance gradually breaks down as income growth stagnates, and eventually these stores become an established fixture in the lives of consumers in pursued economies. From a macroeconomic perspective, this helps bring an end to inflation.

In the “Golden Era”, falling inequality and booming investment make capital relatively scarce, so, according to Koo, active monetary policy is both potent and necessary to stabilise inflation. Once the lustre has faded and economies are under pursuit, however, he thinks the policy mix should switch to fiscal policy:


Once the golden era ends and the economy starts to be pursued by competitors, private-sector capital investment and demand for funds both fall markedly. Price inflation also slows as imports rise sharply and consumers grow more careful. The implication is that monetary policy has a much smaller role to play (as inflation fighter) and is much less effective than during the golden era.

Fiscal policy, meanwhile, is less likely to cause crowding out given the weaker private sector demand for funds and is therefore more likely to be effective. The reduced level of private-sector capex also means that fiscal stimulus is less likely to produce inflation or other unfavorable distributions of resources…If the government can find public works projects capable of producing a return in excess of those ultra-low interest rates, the fiscal stimulus undertaken to implement those projects will ultimately place no added burden on taxpayers, and the economy will continue to function even though it is being pursued.

And who knows, sufficiently large spending programmes and sufficiently large tax cuts may even be enough to restart the process of rising worker productivity, rising investment, and a useful role for monetary policy. But don’t count on it

Share this post


Link to post

We would have had globalisation anyway  because tech development enabled it and business is motivated to drive profits so would get fired if they had not sought productivity in this way.  Equally they needed new markets so actually the benefit of globalisation was at least twofold (more consumers and lower cost of production).  Admittedly it did also some with complexity but it is the job of management to manage that.

 

The real social issue is that companies do not operate in a vacuum and what the shareholder/professional management model does not take into account is the social impact of their policies (just look at what has happened to Detroit...).  It's all a lot more complicated than that of course but wherever you get the rich getting richer and the others losing their jobs and livelihood you will get resentment and eventually reaction.  The rich and powerful keep forgetting this crucial lesson from history but that is human nature I guess, sadly, 

Share this post


Link to post

Speaking of tech, what may help revive economies again, is the use of robotics, of which eventually companies may decide that the costs in terms of logistics and moving staff overseas as well as setting up factories etc, may not be justifiable, however we are long way yet to see this is real action. But one can understand the frustration of some communities, but I also think that in some certain sectors of the economy for de-regulation should occur, that includes sectors like housebuilding and recently in the media, Fracking. However this subject could be debated for a very long time and new innovative ideas always bring along their own social, financial and economic issues. But one thing that has not and unfortunatly will not change is human behaviour.

Share this post


Link to post

The robotics thing is already upon us  and not just in the traditional way in factories, that happened a long time ago.  Now I am seeing robotics taking over administrative work and, if you believe the hype, even things like driving (I mean we already have driver-less trains right!).  While I am all for innovation and you simply cannot stop progress as the Luddities discovered several hundred years ago at some point the cohesion of society has to be considered and addressed or the benefits of all this innovation will be for naught as, worst case, we slide into another dark age...

 

And we are seeing the early signs of this with the protest vote and reactions against the elites and not just in Europe.  If it is not carefully managed and to some extent allowed to happen then there could be consequences way beyond capital markets.

 

First things first thought, we need a clear out in the financial markets and in the management of economies and a reset.

 

Check out this article, which I find intriguing in this context.  I suspect we will need a new breed of politicians, or at least ones smart enough to see what needs to be done, for this too happen.  The current crop will hang on for dear life as we have seen with Owen Smith and so will the central bankers.  Talk about cognitive dissonance!

 

I've made this predictions before (same time I predicted a Brexit victory actually) and I'll make it again.  Holland and Merkel will lose the upcoming elections, the Italians will also be shaken up, the Spanish already are, the Greek issue with the Euro will come back worse than ever (it hasn't been fixed at all) and now added to that there is the spectre of the Donald in the US.

 

Happy days...

 

And all we have to worry about now is what the Janet will say in 15 minutes.  What a world...

Share this post


Link to post

Well no surprise here, really well expected. She makes the case for rising rates, but is concerned about growth and investment. Just demonstrates how much the markets have a rope around her neck. As that article stated Mercury, what is that we are finally seeing the true colours of these central bankers and how their monetary policy really is nothing more than a pretty picture of which behind it is still the mass mess of 2008.

Share this post


Link to post

Oh you gotta wait a bit before drawing that conclusion .  The crazy gang will be swinging the volatility around for 30-60 mins after these things.  I would not wish to decide which way is the dominate trend after the Yellen blah blah for a while yet, although at face value it looks like USD down Stocks up.  Probably wait until Monday and reassess over the weekend.

Share this post


Link to post

Absolutely Mercury, however glad those tramlines have some robustness still in them in relation £ $ and € $, for now of course. the amount of crazy swings that you get during these speeches can be overwhelming, hence why I like to stay on the side-lines quite often.

Share this post


Link to post

Join the conversation

You are posting as a guest. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
You are posting as a guest. If you have an account, please sign in.
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Sign in to follow this  

  • Member Statistics

    • Total Topics
      13,162
    • Total Posts
      66,788
    • Total Members
      89,604
    Newest Member
    Joey23
    Joined 01/12/20 15:42
  • Posts

    • Thanks for clarifying. The support person clearly did not understand this at all, and the website is very vague! The 0.5% is something I'm used to from other platforms, and much easier to absorb as a cost on small positions when making a good entry
    • There was another fork the other day - Bitcoin Latinum - the world's largest "insured" digital asset. One wonders if every time another variant is created it simply draws away potential investors from the original version. I bet committed Bitcoiners wish these variants would all just fork off 😉 I saw something the other day that happened to mention that a Bitcoin was worth about 10 ounces of Gold.......then it hit me - would I prefer to be offered one Bitcoin out there in the ether or ten ounces of physical Gold in my actual possession? 10 Bitcoin to buy a single ounce of Gold intuitively feels like the more sensible way around as I'm certain that Gold is safe but several times less certain that Bitcoin is - so we could be out by a factor of 100! But whilst fund managers all start allocating the odd fractional percent to get exposure to Alpha for minimal portfolio downside the price will probably hold or bubble up even more. It will be interesting though  if national regulators later turn round and ban funds from holding cryptos - then they will all have to rush for the exit at the same time. Maybe that's the ultimate expected outcome.  According to Wikipedia in March 2018 0.5% of bitcoin wallets owned 87% of all bitcoins ever mined. Imagine if  transferring that 87% to fund managers at peak prices is the intended end-game before it all collapses? It would make Bernie Madoff look like a mere pick-pocket.  
×
×