Today I did something I rarely do and listened to nearly the entire Yellen speech. The reason I usually don’t listen to these things is because I don’t want to get caught in a mental whipsaw if markets start reacting to the jawbone du jour. But considering that in March alone the FOMC meeting (ultra dovish) and the subsequent clown show (hawks in drag paraded out just a week later) I felt that I needed some signals from Yellen.
Ref. Macro Changes and Future Inflation Problems
In that post we looked at both the hawkish jawbones and the landscape for a coming inflation phase. Since the FOMC meeting we have had decent pullbacks in gold, the miners and commodities in general, while the US dollar bounced within its double top structure.
Today was telling in that Yellen has been very consistent (aside from her 2 day ‘we are on a rate hike course’/’we are open to NIRP’ slip up), yet these supposed hawks think it is helpful to get on stage and confuse the markets the minute they get a speaking engagement. Free speech is a good thing, but free speech at any given moment among members of an important policy body that is trying to manipulate interest rates to just the right degree is not a good thing. Can you tell I find this frustrating?
Anyway, from this morning’s update…
“Also, when viewing the above [gold] chart as ‘GLD’, you’d see a big gap down from last week. Same with GDX, so we cannot rule out a big short-term bounce to fill those gaps but later on a resumed downside.”
A bounce it was, alright.
But here is where the policy jawbone interference messes with a nice, neat projection. Yellen is the Fed chief. Here are some impressions I got from her speech and Q&A. While she flipped and flopped around the subject, I got the distinct impression that the goal is to tame the US dollar. Why on earth else does a policy maker even mention QE with unemployment so low, the economy relatively strong (compared to the rest of the world) and stock markets near their all time highs?
Because with the Debt to GDP situation we have been reviewing, they see no way out other than inflation. If you are schooled in Austrian economics, you might think about Crack Up Booms. Seriously, I have tried not to mention this stuff because it is what hyper inflationists touted too far into the deflationary phase, hurting lots of people as they did opposite what they should have in such an environment. But if we are looking ahead to inflation, it is probably not going to be a gentle one. That’s why I find Yellen’s comments implying they are seeking just the right level of inflation laughable.
So what’s the point here? Well for one thing, the charts above did what I suspected they might and are filling the downward gap from last week. They will either resume correction or rise and lead the entire ‘inflation trade’ up again. To try to guess would be to play Swami and I am not going to do that.
The point is that the mask is off and the veil of mystery is being removed from the Fed. And confidence in that institution as being a sound monetary steward has declined yet again. We may have our charts that may tell us to expect certain pullback levels (including commodities) but today we had a Fed head telling us to expect further attempts to compromise the strong dollar. I actually sense that Yellen feels pressure from the NIRPing ECB and BoJ to loosen up.
More and more it is looking like we can make like Old Turkey of Reminiscences of a Stock Operator fame and just be right and sit tight. Increasingly, positioning for a coming inflation phase is looking right, short-term disturbances or not. My plan is to do so slowly but surely in the coming weeks.