I've got something to say
I really loved the skillful way
You told us which assets were fairly valued today!
The river of BS was deep but I swam it, Janet
The future's uncertain so let's plan it, Janet
I'm long Spooz and Blues so don't tell me to can it, Janet
I've got one thing to say and that's
Dammit, Janet, I love you
The street had a stop to get long so I ran it, Janet
My book is on fire and you fan it, Janet
If you're trying to make a fool than I am it, Janet
Now I've got one thing to say and that's
Dammit, Janet, I love you
Here's my statement to prove that I'm no joker
There's three kinds of punters whose wealth will grow
That's good, bad, and mediocre
Oh J-A-N-E-T
I love you so
Go see the man who began it, Janet
Ben took my portfolio channel and told me to cram it, Janet
Told me to buy and not to panic, Janet
There's one thing to say and that's
Dammit, Janet, I love you......
With apologies to the Rocky Horror Picture Show
I really loved the skillful way
You told us which assets were fairly valued today!
The river of BS was deep but I swam it, Janet
The future's uncertain so let's plan it, Janet
I'm long Spooz and Blues so don't tell me to can it, Janet
I've got one thing to say and that's
Dammit, Janet, I love you
The street had a stop to get long so I ran it, Janet
My book is on fire and you fan it, Janet
If you're trying to make a fool than I am it, Janet
Now I've got one thing to say and that's
Dammit, Janet, I love you
Here's my statement to prove that I'm no joker
There's three kinds of punters whose wealth will grow
That's good, bad, and mediocre
Oh J-A-N-E-T
I love you so
Go see the man who began it, Janet
Ben took my portfolio channel and told me to cram it, Janet
Told me to buy and not to panic, Janet
There's one thing to say and that's
Dammit, Janet, I love you......
With apologies to the Rocky Horror Picture Show
22 comments
Click here for commentsAs a retail investor I have a genuine question to you institutional/professional types: Why are you even vaguely surprised at Yellen's actions? It's clear to idiots like me that the Fed is committed to inflating away debt by rigging all markets directly or indirectly (using ZIRP, QE and other methods), and that other central banks will obviously aim to do the same. Yet many professionals still stick to valuations & similar analysis and act surprised... why? PS I'm not trolling, and not trying to be offensive in anyway, but genuinely confused...
ReplyPPS I honestly believe you will all be shocked at how extreme this situation will get.
Mr Confused, you do sound a tad like the folks leaving comments on zerohedge. Don't forget a couple years ago, these "gurus" have been touting runaway hyperinflation with the advent of QE.
ReplyYour doomsday view on the Fed does not do them very much justice..
What is the underlying series data? :/
ReplyMr. Confused- despite what you may have read, central banks are not omnipotent, and certainly not omniscient. Policy error is almost always punished in the end, and this episode is no exception. The frustration of professionals is simply that for all the regulatory hand-wringing about avoidi9ng another crisis, the policies being put in place are doing an admirable job of laying the groundwork for the next one.
ReplyWhat?: It's the itraxx IG and leveraged loan indices
Macro Man -
ReplyYour lyrical creativity is impressive. Two questions.
1) What exactly is the chart at bottom showing? Apologies, I am unfamiliar with that model and what exactly it's trying to represent.
2) Do you believe that Yellen was specifically trying to address/correct valuations or simply signalling to the market that she was paying attention? To me the first is regrettable/rash, the second is reasonable...would be curious your thoughts.
Whoops! Just saw your reply to Mr Confused, please disregard my 1) below.
ReplyAnonymous - you're right my post was a bit ZH-like. Personally I think ZH is a bit too doom & gloom... I'm not sure we'll see hyper-inflation, I do think we'll see several years of double-digit inflation down the road (after the next debt crisis).
ReplyMacro Man - thank you for taking the time to reply. I spoke to a small hedge fund mgr in the US and he had a similar view as you. I wish I could buy a "stupidity of politicians" index.
To echo the guv'nor's comment above, Mr Confused is far from alone in his beliefs. One of the dangers of the current market is how many participants have now been trained by classic operant methodology. Multiple rounds of QE, leading to repetitive JBTFD behavior, have trained investors to enthusiastically lever press in order to be rewarded with a banana pellet.
ReplyThis in turn has led the media and many punters to believe that the Fed and its global CB brethren can really control markets, and that CBs will always have their back, no matter what silly ass sh*t they get involved in, and there is thus no longer any measurable risk attached to investing in risky assets. There are many historical examples where this has proved untrue (2007, sub-prime MBS being an obvious example).
The current situation is especially troubling, because when a new problem does emerge, far from being "contained", things might unravel quickly since there are few monetary tools available that haven't already been deployed. For example, it is widely assumed that you can't have a recession during QE and ZIRP, and that therefore everyone can safely pile into growth stocks in confident expectation of an eternal upward march in EPS. The Japanese experience suggests that this is misguided.
The reader is referred to the charts of the Nikkei in the 1990s, where screaming rallies devolved into choppy high valuation markets before suddenly plummeting in sickening plunges as over-leveraged investors wearing the wings of Icarus began to lose aerodynamic support.
Btw, Mr C, we will NOT see double-digit inflation in the US. That would be consistent with 5% 10y note at the very least, and the government simply can't afford to finance the debt at those rates. In addition, there would be a severe breakdown in social order. If you don't believe me, look at the 1970s. The US would definitely instruct the Fed to crash equities rather than see those hairstyles back again....
ReplyDame Janet seems determined not to repeat Bernanke's mistake and spike rates. The economy wouldn't like that at all, and a 3.5% 10y would probably guarantee a recession. She seems to want to let the air out of the equity balloon but doesn't know how to go about it. Perhaps it is the usual story - the Fed only has a hammer (monetary policy) so everything looks like a nail.
ReplyPerhaps the market will just do it to itself, in the end, like the old days. You know, the days before QE when punters would just wake up and say, well that was fun, but I am going to f*ck off to the Hamptons now, sleep in a hammock all day long and spend all these ill-gotten gains at night on Ukrainian hoo..... (redacted by Macro Man)
Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberancehas unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?— "
ReplyIt still took over 3 years for it to pop after Al muttered those famous words in dec 96.
Yeah, but at that point rates were 5% and his next move was a cut, not 0% with the next move a tightening. When the rate hike finally comes, it will be the first time anyone under 30 has seen one in their professional lives
ReplyIt seems more likely to me that the current economic momentum (if you can call it that) will fade and the in 2015 we will wonder why the 2014-man thought rates were going to be raised.
Replythe biggest difference between this bull market and those that preceded it - is that this one seems to be founded on a sea of pessimism.
ReplyPerhaps some micro-foam - but bubbles a la greater theory? Hang on a minute...
"it will be the first time anyone under 30 has seen one in their professional lives"
ReplyThanks MM, this was exactly going to be my point. There are now professionals(!) in the market with the mindset that LB described in his first comment. Never mind rate hike ... how about those who have never weathered a 10% correction in Spoos!
I also agree that Yellen now looks slightly worried about the stock market, but she is stuck in a trap of her own making.
Claus
"it will be the first time anyone under 30 has seen one in their professional lives"
ReplyYes MM great point, but that new generation has also be conditioned by tail risk. Like young lads sent to the front, they are all shell shocked and nervous as hell and have been led into battle by tail risk glory hunters who made their killing in the Global Financial Crapout and subsequent Euro campaigns.
The condition they are not programmed for is irrational exuberance.
We all know this will end in tears. Its just a matter of when Road Runner looks down. With equities over 90% correlated to expansion of the Fed's balance sheet since 2008, where's the mystery? Correlation doesn't cause causation but I don't want to be holding the bag when the music stops in October. Whoa Nelley... The US cannot weather substantially higher borrowing rates but we still have to hope that the crisis part two - since of course the debt crisis has been solved with, er, more debt...will not be another credit crisis... I am no ZH reader but to the first person's point there's an element of truth to the idea and to MM's point of CB's not being really masters of the universe there may come a point in time when the market again reminds them (and everyone else) forcefully... you should have seen the dismay at the Fed last summer with the rates market sell off...
ReplyBTW, dammit that was good....
Replygood old bickering over energy, bad enough - shooting random passenger planes in the sky just atrocious
ReplyI'm glad you guys are so smart and know exactly what the Fed will do and that they have the ability to "crash" equities to prevent inflation. That makes me feel much better now that I know we will enter a depression rather than hyper inflation. All this time I though the goal was to create real economic growth but I guess I'm just an idiot and should focus on what CBs will do world wide. Thanks for all the brilliant insight.
ReplyMr Confused, whether you are zero hedge like or not, you are basically correct. While not aiming for hyper inflation, the Fed would certainly like to maintain an inflation rate north of short-term rates for some time so that nominal GDP grows faster than the stock of debt, thereby improving the overall debt to gdp ratio. So ignore all these monkeys that are bearish on hard assets and make sure to own some real-estate, etc, to hedge your wealth against a lower-rate-than-inflation environment. Yellen flipped from employment to inflation, and now that inflation is growing she's flipping back to employment. She doesn't want rates to rise. Very simple stuff.
Reply