The markets were a bit heavy today as profit taking set in amid rumors that GOLDMAN was selling some long-held commodity trades. I cannot confirm the rumors as nobody from the hallowed tower called to let me know but the rumors weighed heavily on the commodities and certain commodity-related currencies. The GOLD made all time highs and the SILVER put in 31-year highs and both wound up closing lower on the day. Such price action in the precious metals would serve warning about a correction, but as usual I advise consulting your favorite technician or book on technical analysis to determine the best course of action.
Interest-rate determined markets were quiet in the the face of the commodity sell off as were the EQUITY markets. The 2-10 yield curves all over the world were also subdued as there was not much market-moving news. The biggest story was the speeches by the FED‘s more DOVISH members: Bill Dudley in Japan and Janet Yellen at the Economic Club of New York. The theme was in line of their most recent missives and follows right in line with the words of Chairman Bernanke. As Groucho Marx would joke: Say the magic word and the duck comes down. For now that word is TRANSITORY.
Vice Chairwoman Yellen used it repeatedly in her speech in reference to the potential impact of inflationary pressures in the global economy. I am going to link to the speech and wish all of you would read the speech in full for I am not going to challenge the FED and its credibility: I am going to let you decipher that for yourselves. For 16 months I have been writing about the failure of the FED‘s models and I believe it is exposed in Yellen’s text.
The only thing I will remind the FED and other serial modelers is that not everyone operates in a world of STOCHASTIC MODELS where time smooths out all unwanted outcomes. Let us remember that LONG TERM CAPITAL MANAGEMENT built its “success” upon similar models. Also, remember that the FED, along with the Bank of England, has taken the view that rising commodity prices are an economic drag because there is presently no private sector union negotiating power to push wages higher. The FED will keep rates low to protect the middle class worker from the ravages of higher prices on commodity staples for they see higher rates as adding a further strain. I don’t know if the FED is right in this path it has taken but it is aiding the attack on its credibility.
Read the Yellen sppech and we will go forward from there. I have no model for 2+2=5 for its stands on its own in the great tradition of DOSTOYEVSKY’S battle against the rationalists. There are always beneficial aspects to models to help explain but total reliance on anything is an arrogance of its own. As always, the global political economy is a dynamic force that cannot always be understood by time reliant models. ENJOY THE YELLEN SPEECH.
Tags: Bernanke, Bill Dudley, equity, Fed, Gold, Goldman Sachs, Janet Yellen, Long Term Capital Management, silver
April 12, 2011 at 1:12 pm |
The difference b/t that speech and a chapter of Catch-22 is that in the end Catch-22 always made a good point. Forgive my youth, but are these people liars, stupid, or true believers?