Fedspeak-English dictionary

To help readers navigate through Janet Yellen's Congressional testimony this week, Macro Man is happy to call on his two decades-plus of Fed-watching to offer the Fedspeak-English dictionary below.  Consider it a sort of "Google translate" for the modern financier:

"The unemployment rate remains elevated":  Further accommodation is warranted

"The housing sector remains slow":  Further accommodation is warranted

"Inflation is running below the Committee's longer-term objective" :  Further accommodation is warranted

"We anticipate a firming of economic conditions":  Further accommodation is warranted

"Asset purchases are not on a preset course":  Further accommodation is warranted

"Equity prices are at record highs":  Further accommodation is warranted

"Financial market volatility is very low":  Further accommodation is warranted

"The Committee will continue to carefully monitor financial conditions and to emphasize in its communications the dependence of its policy decisions on the evolution of the economic outlook":  Further accommodation is warranted  

"Recent trends in financial markets might suggest that investors are not appropriately taking account of risks in their investment decisions":  Don't blame us when it all goes wrong again 

"We see evidence of a reach for yield in some sectors, such as leveraged loans, but do not believe that stocks are a bubble":  Using zero as a discount factor can justify just about any price

"Fed policy has supported the recovery": We have backstopped mindless buyers of risky assets

"We support a strong regulatory regime, Senator Warren": How could a Byzantine regulatory framework possibly dissuade banks from lending? 

"We will not allow inflation to get out of control":  If it does, we'll change our target to something that doesn't go up 

"The terminal Fed funds rate is likely to be lower than normal":  Even after we start tightening, it won't be long before I start saying 'further accommodation is warranted' again 

Of course, Macro Man may have omitted a few entries.  Readers will no doubt help fill in the blanks in the comments section.... 




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Anonymous
admin
July 15, 2014 at 7:41 AM ×

What i would give for a 2 x levered, inverse Fed credibility ETF.

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CV
admin
July 15, 2014 at 12:28 PM ×

Well, call iShares or Vanguard and I propose yourself as a manager, I am sure they would listen. I mean, what would put into such a thing chaps. A little bit of inverse front-end exposure? Or just an inverse Zervos?

Stranger things have happened in financial markets, CYNK comes to mind!

Heck, on that note .. I will call them! ;)

Claus

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abee crombie
admin
July 15, 2014 at 12:59 PM ×

"Recent uptick in inflation is transitory " call us back when there is wage inflation for 6months in a row above 2.5%
Bc food, gas, asset price, shelter and other measures of inflation don't really count.

Re cv. Zervos is still bullish as ever according to his latest piece yesterday. And he is starting a fund soon

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CV
admin
July 15, 2014 at 1:39 PM ×

He he yes Abee ...

I heard about Zervos starting his own gig ... all the best to him. I will probably be a bit more complicated than Spoos and Blues ...

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abee crombie
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July 15, 2014 at 3:17 PM ×

Hot off the press

"economic recovery is not yet complete" ... not everyone is a Silicon Valley, Manhattan penthouse billionaire, so further asset inflation is warranted

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Anonymous
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July 15, 2014 at 3:41 PM ×

Rolling Thunder...ESPIRITO SANTO GROUP'S HOLDING COMPANY RIOFORTE PREPARING TO FILE FOR CREDITOR PROTECTION IN LUXEMBOURG

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Mr. T
admin
July 15, 2014 at 4:05 PM ×

*YELLEN SAYS OVERALL VIEW OF ECONOMY IS POSITIVE": Further accommodation is warranted

Am I doing this right?

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abee crombie
admin
July 15, 2014 at 5:37 PM ×

ESF (the 20% owner of BES, the bank) 6.75 bonds trading at 8cents on the dollar.

BES sub bonds trading at 71

complicated share structure looks to be getting a lot easier. No more parent company !

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Leftback
admin
July 15, 2014 at 10:26 PM ×

Equity prices are at record highs. How long before buyer's remorse? Dame Janet should have said:

"You paid too much for that clunker".

Is it just me or does everyone expect a bailout of BES? What happens if there is a Cyprus-style bail-in? Does anyone remember counter-party risk?

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CV
admin
July 16, 2014 at 7:15 AM ×

Completely agree LB, unfortunately for the small economies in the eurozone, the reality is that equity holders in these things will be left on the tracks ... it will be Cyprus all the way in my view.

Read this for just how complicated this can get though.

http://www.bruegel.org/nc/blog/detail/article/1369-comfortably-numb-esm-direct-recapitalization/

Nothing is ever easy in the eurozone, but my base case would be that equity holders as a minimum are done and dusted, and then of course comes the subordinated, COCOs, etc etc. It should be fun.

Claus

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Gnome of Zurich
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July 16, 2014 at 8:35 AM ×

In all that news frenzy around Espirito Santo, people don't seem to do their homework. How should BES be in danger with 7bln equity vs 82bln total assets and 1bln annual pre-provision income when their total loan exposure to the troubled familiy holdings is only 1.2bln? The overleveraged family holdings will file for creditor protection, their bonds will get crushed and their 20% stake in BES sold but BES itself will be fine. There's no need for bail-ins or -outs here.

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