The stock market has shown about as much steadfastness and clarity lately as a policy speech from Janet Yellen. Too bad all the markets seem to live for any more is to channel the Fed’s inner egghead. When Yellen says ‘Osduifhsd!’ investors say, ‘How high’? And when she says ‘Blufum doozney, tachak,’ the mosquito-brained slackers who package and regurgitate the news dutifully interpret this gibberish as meaning she intends to tighten. Too bad an inscrutable phrase or two from Yellen invariably moves markets, since that obliges us to take all of her wily blather seriously. Having a Fed chairman around to “explain” monetary policy should never be less than entertaining, as Greenspan demonstrated time and again. Recall that, with his PhD in economics, he habitually referred to inflated home prices as “wealth,” and ballyhooed a supposed capital investment boom at a time when household savings growth was negative. This was hubris enough to further blacken the name of the already dismal science. The world would arguably be better off if Greenspan had stuck with the saxophone and worked the Catskills rather than the lobbies of power.
Alas, Easy Al found a worthy successor in Helicopter Ben, who honored the central bank’s hallowed tenet of enriching bankers and paper-shufflers like Carl Icahn at the expense of the rest of us – and of beating up on certain investables such as gold, which refuses to be cowed or fooled by the Fed’s cynical duplicity. And now comes Yellen, who gave her first policy speech last week, to the detriment of bullion investors around the world. Whatever it was she said, listeners might have interpreted it in a half-dozen ways. Leave it to the Street to infer hawkishness – and down came stocks and gold.
4.25% ‘Mortgage Alert’
Let me reassure you: actual Fed tightening is about as likely as a Martian invasion. I’ve said that before, and I don’t regard the so-called taper as having impaired my logic. Yes, the Fed has announced reductions amounting so far to $20 billion a month in its purchases of Treasurys and mortgage-backed securities. However, compare this piddling sum to the manifestly un-tapered global market in derivatives: $1 quadrillion and counting, according to estimates that are probably conservative. If and when tightening finally occurs, it will not be because of Fed policy, but because market forces that have been absent or at least suppressed for more than 20 years have returned with a vengeance. Meanwhile, if you want to set an alert, use a spike in 30-year mortgages to 4.25%. Now that would reflect tightening worth the name. It will also spell the beginning of the end for the massive financial hoax that has sustained the global economy since the S&L bailout of the early 1990s.