Notes From Underground: It’s All About the Narrative

The Kansas City Fed Symposium was steeped in boredom as all the hype failed to live up to the expectations of the media. The excitement centered around Mario Draghi potentially dropping hints about the beginning of quantitative tightening (QT). Rick Santelli spoke with former FOMC Governor Mark Olson, who rightfully predicted Chair Yellen would not reveal any sense of Fed intentions but he was dead wrong about Draghi. Olson opined that Yellen put the spotlight on President Draghi, but the ECB President must have suffered stage fright as he very bland when speaking to concerns about the Trump administration’s move to economic nationalism. There was not a single word about ECB policy.

It did appear that Chair Yellen and President Draghi did coordinate on their desires to prevent the rollback of financial regulations. Yellen spoke to U.S. issues. She said: “The balance of research suggests that the core reforms we have put in place have substantially boosted resilience without unduly limiting credit availability or economic growth. But many reforms have been implemented only fairly recently, markets continue to adjust, and research remains limited. The Federal Reserve is committed to evaluating where reforms are working and where improvements are needed to most efficiently maintain a resilient financial system.” This statement highlights concern about maintaining regulations and seems to be directed at the White House/Wall Street efforts to rollback the Dodd-Frank financial regulations. President Draghi followed with his view: Specifically, when monetary policy is accommodative, lax regulation runs the risk of stoking financial imbalances.

By contrast, the stronger regulatory regime that we have now has enabled economies to endure a long period of low interest rates without any significant side effects on financial stability, which has been crucial for stabilizing demand and inflation worldwide. It appears that the central banks are relying on macro-prudential regulatory policy in an effort to prevent further exorbitant asset price appreciation. In the only reference to European economics, Draghi said — according to a Bloomberg headline, “Euro Area Recovery Is Gaining Ground.” The EURO CURRENCY rallied after the headline was published, definitively broken above the critical 118.50 spot price, even though there was not a hint of the ECB removing its NIRP nor QE.

My response to Yellen and Draghi’s speech is that Yellen and friends is pushing back against the narrative being promoted by the Wall Street inspired sycophants of established wealth.The financial is promoting the narrative of Gary Cohn for FED Chair and some pundits believe it is a given.These are the same voices who continued to promote Larry Summers back in 2013 over Ms.Janet Yellen–in this blog I stood firm against that narrative and today I stand against the promotion of the Cohn narrative.Then,as now,I believe the trio of Senators Lizzie Warren,David Vitter and Sherrod Brown will block a Wall Street insider from being in charge of monetary policy.

The Gary Cohn narrative is subsumed in the thesis of the Dodd-Frank rollback. If COHN were to replace Janet Yellen as the next Fed chair it would be a MAJOR victory for Wall Street over Main Street, resulting in the loss of President Trump’s last bastion of solid support. It wasn’t Wall Street that put Trump in the White House, therefore Trump owes the financial establishment NOTHING. Yellen’s speech in Jackson Hole was a warning shot about Wall Street’s designs on watering down the regulations put in place after the global financial crisis. For investors the question is: How much of the equity markets’ recent strength is due to the “COHN as Fed chair” narrative?


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11 Responses to “Notes From Underground: It’s All About the Narrative”

  1. Asherz Says:

    The oft repeated phrase by our esteemed Fed Chair Yellin, which is her mantra,is a “resilient financial system”. Yes, a robust global financial resiliency by pumping $13 trillion down the ventilator of the patient who has been on life support for over eight years. QE and NIRP are here to stay, with the alternative being pulling out the tubes, not an option.
    As to Gary Cohn becoming Janet’s replacement, writing that letter of resignation and leaking the contents did not make his boss very happy. Las Vegas has raised the odds on that one. President Trump demands loyalty, so look for a strong supporter in the financial world to take the corner office in the Eccles building. Is loyal soldier and another Goldman graduate class of 2002 TreasSec Steve Mnuchin a possibility?

  2. Robert Zimmerman Says:

    I agree Cohn is what is keeping the SM from a major correction with QT and Yellen’s end looking more like reality.

    • Yra Says:

      Robert–yes i agree but i look back to 2013 and think that the narrative is flase and is being wished by wall Street which sets up the battle lines

  3. the bigman Says:

    As true now as then:

    There’s battle lines being drawn
    Nobody’s right if everybody’s wrong

    It’s time we stop
    Hey, what’s that sound?
    Everybody look – what’s going down?

    Steven Stills
    Buffalo Springfield

    How long before the Fed Heads use Hurricane Harvey as their next excuse not to raise rates?

    • Yra Says:

      Bigman—see the Honeymooners episode on harvey to see your FED response?But I appreciate your post For What It’s Worth

  4. the bigman Says:

    watched the episode Lol and very apropos but Janet and Mario don’t hold a candle to Carney and Gleason

  5. Chicken Says:

    It’s been refreshing to see the question rephrased from the perspective of “IF” as opposed to the familiar “when”.

    • Yra Says:

      Chicken–you have read this blog for a long time[thank you] and know we promote IF/THEN scenarios very similar to what Dalio has proclaimed to be an economic mechanic

      • Chicken Says:

        Thank you Yra, for sharing your thoughts, cutting to the chase and explaining the concepts. As you know, I’m but one of your many grateful readers.

  6. Scott Says:

    I’ve heard it rumored that everyone’s favorite Fed critic, Kevin Warsh, might be the odds on favorite. Warsh apparently has the support of the administration. Would definitely be interesting from a Fed policy standpoint.

    • Yra Says:

      Scott–I think this is a credible choice having read many of his speeches but my favorite and most deserving for past work is the woman I recommended as Treasury Secretary once on santelli—Sheila Bair who stood down Geithner when she chaired the FDIC duri ng the great financial crisis

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