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Bravo Professor Yellen

February 16, 2014

Yellen

The past week was marked by a grueling six-hour session with the new Fed chair, Dr. Janet Yellen, in which Congress grilled the decorated professor on many levels of the economic and monetary policy spectrum. Readers of this blog know that I have been highly critical of Fed policy ever since the financial crisis was arrested in 2010. However. Mrs. Yellen did a remarkable job to reassure Congress, markets and anyone listening that she is in control and fully aware of the real economic issues that are somewhat misleadingly reported from time to time.

This first public appearance as Fed Chairwoman was well received by financial markets around the world and deservedly so. Keep in mind that when Alan Greenspan took over the Fed in 1987, he was faced with the crash of 1987 within the first year in office. Likewise, Ben Bernanke took over in 2006 and we know what happened after that. In my opinion, Mrs. Yellen faces a near impossible task to juggle the Fed’s money printing activity with a gigantic Fed balance sheet but to her credit, she seems better fit for the job than anyone else I know.

As for the markets, keep watching the chart below. As long as the markets follow the Fed balance sheet, the situation is and will remain under control.
S&P500

At some point in the future and in my personal opinion in late 2015, the Fed will eventually lose control of market confidence and we will enter a major global financial crisis. The trigger will most likely be either an out of control bond market or chaotic currency movement as outlined in   “The trigger for the next financial crisis”. Until signs of a break down appear, do not fight the trend and stay the course.  Caveat Emptor.

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