Here's my summary of the key news overnight in 90 seconds at 9 am, including news of some central banker blindness.
Janet Yellen gave an accomplished performance at her Senate confirmation hearings overnight in Washington DC. Her well-established Keynesian credentials were evident, and Yellen indicated that she will continue Bernanke's easy money policy.
However, when she was questioned by senators on the issue of asset valuations, Yellen took a stance that raised eyebrows in the markets. She said that there is “limited evidence of reach for yield” and the Fed doesn't see a “broad build-up in leverage”. Her claim that investors aren't grasping for yield is clearly debatable.
Investors lapped up the idea that QE is likely to continue for some time yet. Yellen aside, every indicator has asset prices racing higher.
The S&P500 crossed the 1,800-point mark and the Dow Jones industrial average surpassed 16,000 points, both for the first time ever yesterday. European stock markets also climbed to their highest in 5 years.
In China too, stocks rose, in their case on optimism based more on the released details of the leadership's reform plans. Those details impressed analysts. A new wave of loosening of economic controls is coming.
And finally, something to watch across the ditch. Relations between Indonesia and Australia are souring fast on spying claims. The Indonesians have recalled their ambassador.
Gold and oil prices are lower today, and benchmark US Treasury 10yr yields are also lower.
The NZ dollar starts today at 83.7 USc, 89.0AUc, and the TWI is at 78.0.
The easiest place to stay up with today's event risk is by following our Economic Calendar here »
No chart with that title exists.
4 Comments
The easiest place to stay up with today's event risk is by following our Economic Calendar here »
An even easier place to find out what Fed officials are really up to can be found here.
Yellen is right its no asset -price bubble (not just yet).
Buying stocks and other assets is the market reaction to cheap money chasing a yield it cannot get anywhere else.
Asset prices are rocketing into the stratosphere everywhere . The QE fueled rocket is the only explanation , because the ECONOMIC FUNDAMENTALS have not changed
The world is still up to its eyeballs in debt, there is excess capactiy everywhere , and serious unemployment in some developed economies.
The net result is the NYSE is at a record high , as is the ASX and even the Soutth African Stock exchange (JSE), the NZX has been stellar , and even house prices in Auckland have reached new levels on the back of cheap money
I am no central banker, but, to my untrained eye, QE has created a jaws-of-death rat-trap for the FED
Interest rates can be managed easier from the upside, because, if necessary they can be reduced
However, with interest rates at zero they are caught in a rat-trap
Where can they go from here?
How?
How do they raise interest rates?
They can't. Almost impossible. Because QE hasn't achieved what it was intended to do.
QE takes over once in the zero bound trap and rates cannot be lowered any further (as they go negative). Really though QE is proving to be a failure in terms of putting money out there into Main street in order to stimulate spending and hence growth. What QE has really done is handed money to Wall street which has promptly gambled with it. So Wall street had to be "fixed" from the time bought with QE, didnt happen, then QE might have worked.
QE was knobbled IMHO, its a cherry picking scenario, we had to have QE and the fixes had to be done.....we didnt so its a failure in a way. "In a way" because without it we'd probably have a global financial meltdown and a Greater Depression with deflation by now IMHO.
Not just the FED in a death trap, us as well, "a global financial meltdown and a Greater Depression with deflation" now seems to be coming at us, fast.
As an alternative to QE, Steven Keen suggested a massive debt jubilee where $100ks were handed to each person with the provisio that debt was cleared with it first. "real" one off printing....no one would do it....
regards
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.