Hang on to your hats!
Janet Yellen speaks at 10 am, EST and she's scheduled to discuss her "Labor Dashboard" and, from that, the pontiffs will then attempt to read the tea leaves of Future Fed action. She'll likely note that the Labor Market is generally improving but that there is no immediate reason to raise rates. The definition of immediate will be much debated.
If that does not confuse us enough, we will hear from 7 of the Fed Dwarves as well including Williams, Lockhart, Plosser and Bullard. Draghi takes the stage at 2pm, EST. In case Yellen's empty promises don't do the trick, Draghi is sure to have even emptier ones – whatever it takes to end the week on a positive note!
Still, we're playing the day bearish (we added bear plays in yesterday's Live Member Chat and we're short /YM below 17,000 along with other Futures) as it's hard to imagine what Yellen and company can possibly say that they haven't already said. Unlimited amounts of FREE MONEY forever is already priced into market expectations – anything less will be a severe disappointment. Any firm mention of ending QE in the next 12 months can send the markets down sharply. As "clarified" by Goldman Sachs:
With opinions mixed as to whether or not Jackson Hole will be the forum for Yellen to say something new, many are trying to figure out if it is a buy the rumor and then buy more after the fact event, a buy the rumor sell the fact event, or a do nothing with the rumors and then buy the fact if the USD is actually rallying after the fact event.
According to Zero Hedge, only "Full Doveish" statements are likely to lift the markets at this point. Those would be for Yellen to:
1) Argue that the natural rate is less than 5 ¼ – 5 ½ %
2) Advocate for a temporary overshoot of the inflation target
3) Emphasize the uncertainty around NAIRU estimates that tightening can wait till there is real evidence of accelerating inflation.
4) Introduce a soft wage target of about 3.5%, consistent with aspirational 1.5% productivity growth and 2% unit labor cost growth
As we discussed on Wednesday, Fed policies to date have been a boon to the top 1% but not so much for the rest of society. After almost losing everything in 2008-9, the top 10-1% are simply pleased to be back to where they were – and you would be too if the low end of your income was $160,000. If not, you are not in the top 10% and that means – NO RECOVERY FOR YOU!
Economically, the question is: Do we need the bottom 90% to succeed in order to enjoy ourselves. Obviously not so far, as the market is up 200% since March, 2009 while wages for the bottom 90% are up 0.5%, falling 10% behind the inflation the Fed likes to pretend doesn't exist (though Shadowstats paints a very different picture). We don't need the American bottom 90% because it's just 270M people in a Global Economy of 7Bn, so not even 4% of the people we in the top 10% sell stuff to while they, unfortunately, tend to sell to each other – hence the deflationary spiral that allows the Fed to give us (the top 1%) MORE FREE MONEY!!!
In fact, since it benefits us to pay our local labor force as little as possible, why would we ever want the bottom 90% to recover? If the US labor force starts feeling good about themselves they might want to be paid more – and we can't have that, can we? That's a lesson we learned when we allowed the middle class to prosper in the 50s and 60s – they unionized and demanded fair wages – NEVER AGAIN!!!
Less employees making lower wages with fewer benefits is the cornerstone of our market rally. That coupled with less shares available to the public has made stocks themselves a rare commodity that has been free to bubble away. The end game is to invest in automation and ultimately do away with the need for workers entirely – something else we discussed in Wednesday's post.
The only question now is: "How long can this Free Money Party continue?" Clearly, none of the stocks we're tracking are pricing in even 2% Fed Funds rates in the next few years, even though the historical average is 3.5%.
When the Federal Government is selling 10-year notes at 3% and lending money to the banks at 0.25%, that 2.75% gap is a loss and that loss is paid for by the American people in the form of increasing debt and deficits and the declining value of our Dollar (because we have dumb-assed policies). The declining Dollar further boosts the exports we sell to the rest of the World so we don't have to worry about the fact that the bottom 90% in this country no longer have any money to spend.
That's the double whammy we're hitting the bottom 90% yet – they've run out of money long ago and now we're going after their retirement savings (in fact, the whole idea of retirement is pretty much off the table for them now!) and their children (we've already stopped educating them – what's the point?) and, by the time we're done, their children's children will be born into a lifetime of debt.
Thank you Federal Reserve, we couldn't have done it without you!
Have a great weekend,
– Phil
