BY JOHN WARD
“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”.
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:
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.