Ep. 211 Yellens Remarks Cause Markets To Anticipate The Impossible
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The stock market continues to ride the Trump wave to new highs, in fact the Russell 2000 hit an all-time record high today
The enthusiasm for stocks not being dampened by the carnage in the bond market
We now have the yield on the 10-year treasury up at around almost 2.3
And the yield on the 30-year now, just below 3% - 2.99
Yields are still low, but nowhere near as low as they were
And of course, nowhere near as low as they're headed
It's not just the fact that bond yields are rising, but the rapidity with which they're rising
And the technical damage that is being done
This again, as I said in an earlier podcast this could be the beginning of an explosive move up in interest rates
And right now, nobody seems to care, least of all Janet Yellen
She testified today - her supposedly hawkish testimony is one of the reasons that gold sold off today and the dollar rallied
Before she spoke, gold was positive on the day
She did say it would likely be appropriate to raise rates "soon"
And everybody interprets "soon" as, the next chance they get, which is less than a month from now
Although, if the Fed is really determined to raise interest rates in December
Why not just say it?
Why say it may be appropriate to raise them soon?
Just say, "It's appropriate to raise them in December"
They still want to leave themselves plenty of wiggle room
Even though the markets are saying it's a 95% probability
The Fed is still being very coy and data dependent
I think what's more important for the markets is the fact that Janet Yellen acknowledged
That if we get a fiscal stimulus - which she doesn't even think is needed -
She pointed out that we have a growing economy, everything is good, the unemployment rate is very low
And that stimulus now in the form of tax cuts or extra government spending could overheat the economy
And that she will have to adjust her monetary policy based on what Congress and President Trump ultimately decide to do
That's what's scaring the bond markets, because what Yellen is saying, is that
If Congress and Trump want to step on the gas, she's going to have to tap on the breaks
To prevent this thing from overheating, meaning that with unemployment already so low
Any stimulus now, risks making inflation too high
Meaning that the Fed would have to act to rein it in
Even though she still suggests that the pace of rate hikes will be slow
She's implying that the pace will pick up if need be to offset the stimulus effects of tax cuts and spending increases
And that is what is rattling the credit markets
But what Janet Yellen or nobody else seems to understand is that any significant rise in long-term interest rates will crush this bubble economy

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