Does anyone else miss Kim Beazley? Today’s Daily Reckoning, and last night’s financial market action, is dedicated to the former opposition leader’s most memorable quote: The ‘Myrmidons have gone through a process of obfuscation‘.
The Myrmidons were elite soldiers commanded by Achilles, or in this case Janet Yellen. But last night she revealed herself to be a poor public speaker, unlike Brad Pitt in the movie Troy. Just like the ancient Greeks, stock markets need good orators to get them going. These days, it’s central bankers and the media doing the heavy lifting when it comes to financial markets.
But at her first FOMC decision press conference, Yellen didn’t provide the verbal stimulus with any sort of conviction. The media Myrmidons promptly went into a process of obfuscation to keep markets from cratering.
The end result was utter confusion. Stocks fell, rose, fell and rose dramatically, to finish down around half a percent. Currencies and bonds went haywire in conflicting directions and commodities couldn’t make up their minds either. Our market is down nearly a percent at the time of writing too.
The media and its pundits were in even more of a state in their haste to make sense of their faltering leader. Here’s a sample of comments from reputable news organisations and commentators. We won’t reference them, to avoid embarrassing anyone:
‘The Federal Reserve has cut back its stimulus program by another $US10 billion’ versus ‘The Federal Reserve revamped its stimulus program Wednesday in the first meeting run by new Chairwoman Janet Yellen.’
‘Fed still dovish as ever’ versus ‘Who thought Yellen was a hawk?’
‘The March Summary of Economic Projections (SEP) indicated a more hawkish path of the policy rate than that seen in the December SEP’ versus ‘Yellen says Fed officials’ views on the path of tightening are “virtually unchanged” from December.’
Worst of all, the keeper of the indices, Janet Yellen herself, seemed confused about what she was saying and doing. She bungled an impressive amount of rather important points during her press conference.
First up was the definition of ‘considerable period’. That’s her estimate for the amount of time between the end of tapering, expected to be ‘next Fall‘ (our Spring) and the beginning of interest rate increases.
How long is a ‘considerable period’? Glad you asked. Yellen reckons it’s ‘six months or that type of thing.’ Hmmm. Not confidence inspiring for the speculators, is it? Compare this to Achilles’ pre battle speech in the movie Troy:
‘Myrmidons! My brothers of the [stock market]! I would rather [invest] beside you than any army of thousands! Let no man forget how [stimulating] we are, we are lions! Do you know what’s waiting beyond that [Dow Jones Industrial 35 day moving average]? Immortality! Take it! It’s yours!’
Yellen’s fumble didn’t end there. The next thing we knew, she moved the date for the end of the taper forward 12 months by clarifying that ‘next Fall’ really means ‘this Fall’.
So who was more confused by the time markets closed; the stock market, the media or Federal Reserve Chair Janet Yellen?
Our call is the media. One commentator from the Wall Street Journal managed to include the following contradictory analyses in the one article: ‘Yellen exudes confidence and competence in this press conference. Does that matter to markets? Bernanke often sounded jumpy.‘And then this: ‘When this is over, Yellen will wonder what she did wrong… Communication breakdown, Madame Chairman.’
Without his faithful Myrmidons, even Achilles would’ve struggled. Hopefully Yellen will get her act together by the next speech.
If you think we’re nit picking, keep in mind Yellen is moving markets to the tune of billions by bumbling her words. It’s the savings of millions of Americans she’s playing Simon Says with. Each error led to a 100 point leg down in the Dow according to Greg Peel of FNArena News.
It’s much the same over the long term too. There’s a high correlation between increasing monetary stimulus and the stock market. But the correlation between the amount of words used in the FOMC’s statements and the Federal Reserve’s balance sheet is even closer. Any decent economist would conclude that central bankers talking is what really drives the stock market.
So get wordy, Glenn. You’re not in charge of the Reserve Bank of Australia for nothing. Or do you want to be replaced by Kyle Sandilands?
Greg Canavan has a more logical and profitable take on all this over at Sound Money. Sound Investments. He’s done some digging on which stocks loose monetary policy affect in what ways. His playbook is lined up to profit from the next phase of monetary manipulation.
Given the power of central banks to move markets, and their admission that it’s in their mandate to increase stock prices because of what they call the ‘asset price channel‘, taking a position makes a bundle of sense.
Ordinarily it would be a bit tacky to take people to task for their analytical and oratory shortcomings. But remember, these people are moving markets. Whether it’s Putin or Yellen, your wealth is dependent on the whims of individual central planners around the world. How wise do you think they are? How much do you think they care about your wealth?
What are you going to do about it?
for Markets and Money