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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/GXPrUnR30TY/story01.htm williambanzai7

Following our earlier preview, we expect the Q&A to have some potential fireworks as the politicians demand she "get to work" as soon as possible. If you are playing buzzword bingo at home – drink if she says "bubble", "depression", "data-dependent", "fiscal", or "screw you Schumer."

 

Live feed from Senate:

 

Live feed via Bloomberg (click here if embed is not functioning):

 

Live feed from C-Span – click image for feed.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/FxH2lGliilA/story01.htm Tyler Durden

Following our earlier preview, we expect the Q&A to have some potential fireworks as the politicians demand she "get to work" as soon as possible. If you are playing buzzword bingo at home – drink if she says "bubble", "depression", "data-dependent", "fiscal", or "screw you Schumer."

 

Live feed from Senate:

 

Live feed via Bloomberg (click here if embed is not functioning):

 

Live feed from C-Span – click image for feed.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/FxH2lGliilA/story01.htm Tyler Durden

On any other 30yr auction day, i would be selling 30yr bonds right here (9am in NY) (30yr bond yield @ 3.79% and UB futures @ 140-21   both higher in price by 4 basis points on the day) in anticipation of the 16bln 30yr bonds (32bln 10yr equivalents) to be auctioned in 4 hours.

(pictures 30yr UB bond futures vs inverse DX)

However, today is not any other day.  Unemployment claims are slightly up…more than expected, labor productivity is up, and unit labor costs are down.  All of these point to no desire to increase hiring.  That is bad for the consumer (because the consumer is labor), and hence bullish for bonds.  These numbers ought to also be bearish for stocks (a weaker consumer does not increase spending)…but it seems the QE fever is still keeping S&P futures high before the open.  In a world where more QE = higher stock prices…Yellen’s prepared remarks released yesterday made no mention of taper, and were highly supportive of QE continuation (though she did not explicitly state that).  The remarks were vague, but erred on the side of continuing current accommodative policy (so, QE-4-ever).

This causes a conundrum. Regardless of Yellen’s testimony and Q&A session this morning, there will still be a 30yr bond auction at 1pm (ET).  Given the strength and low volume yesterday, and the current bullish tone of the bond market (4bps stronger from yesterdays closes) the bond market does not feel like there is a significant setup of short 30yr positions.  This must take place before the auction.  Primary dealers must each bid for their pro-rata share of the auction (so about 800mm each).  No dealer wants to come out of a 30yr bond auction long 800mm 30yr bonds…its just too much risk in a world where directional risk is shunned.

This is the backdrop in the minds of bond traders as we approach Yellen’s testimony and Q&A session.  We will be reacting to her testimony with this in mind.  However…to be clear…if she does not indicate a desire to extend QE (either in fact, or by indicating a lower unemployment threshold) then there should be good selliing of 30yr bonds to setup for the 1pm 30yr bond auction.

Typically, bond traders want to come out of the 30yr bond auction long bonds…but typically that occurs from a very low price, as the market usually sells off going into the auction.  Today that is not the case (so far).  I expect today to have unusually high volatility in the bond market….but we will just have to wait and see.

I’ll be active on twitter today…so feel free to join in the conversation.

http://govttrader.blogspot.com/

https://twitter.com/govttrader

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/F08nAmtHL_4/story01.htm govttrader

Earlier today consulting company McKinsey, which has now become the new Moody’s, released a 72 page report titled “QE and ultra-low interest rates: Distributional effects and risks” which contains the following pearls of wisdom: “The impact of ultra-low rate monetary policies on financial asset prices is ambiguous. We found little conclusive evidence that ultra-low interest rates have boosted equity markets. Although announcements about changes to ultra-low rate policies do spark short-term market movements in equity prices, these movements do not persist in the long term.” Uhh, does McKinsey have an S&P chart that goes back to 2008? One would think whoever commissioned this report can at least pay for “bigger charts.” Continuing: “Moreover, there is little evidence of a large-scale shift into equities as part of a search for yield. Price-earnings ratios and price-book ratios in stock markets are no higher than long-term averages.”

We will spare any analysis, in-depth or otherwise, of the report: it merits none, and certainly not for those who watch the farce that the “market” has become.

Sadly, by issuing such drivel McKinsey has just tarnished what little reputation and credibility it may have had.

Instead we will just point out, visually, what McKinsey is saying: namely that the chart below which shows the causation between the S&P and the Fed’s balance sheet, doesn’t exist and is purely a figment of overactive realists’ imaginations.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/3ZKVsxI5i9M/story01.htm Tyler Durden

Earlier today consulting company McKinsey, which has now become the new Moody’s, released a 72 page report titled “QE and ultra-low interest rates: Distributional effects and risks” which contains the following pearls of wisdom: “The impact of ultra-low rate monetary policies on financial asset prices is ambiguous. We found little conclusive evidence that ultra-low interest rates have boosted equity markets. Although announcements about changes to ultra-low rate policies do spark short-term market movements in equity prices, these movements do not persist in the long term.” Uhh, does McKinsey have an S&P chart that goes back to 2008? One would think whoever commissioned this report can at least pay for “bigger charts.” Continuing: “Moreover, there is little evidence of a large-scale shift into equities as part of a search for yield. Price-earnings ratios and price-book ratios in stock markets are no higher than long-term averages.”

We will spare any analysis, in-depth or otherwise, of the report: it merits none, and certainly not for those who watch the farce that the “market” has become.

Sadly, by issuing such drivel McKinsey has just tarnished what little reputation and credibility it may have had.

Instead we will just point out, visually, what McKinsey is saying: namely that the chart below which shows the causation between the S&P and the Fed’s balance sheet, doesn’t exist and is purely a figment of overactive realists’ imaginations.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/3ZKVsxI5i9M/story01.htm Tyler Durden

It would appear that much of the rally yesterday (and early overnight) was driven by hope (and confirmed relief) that Fed chair nominee Yellen is not about to take on a substantially less-dovish tone in today’s testimony in an effort to garner the support of the more hawkish elements of the Senate Banking Committee. There was a great deal of confirmation bias in the market’s move and interpretation but, as BofAML notes below, this may be misplaced. The more important part of today’s testimony is yet to come in the Q&A session – where we will hear likely more unscripted thoughts from the QEeen at her Senate confirmation this morning.

 

Deutsche’s Jim Reid notes that:

The market has zeroed in on the 5th and 6th paragraphs of the statement where Yellen describes the economy as performing “far short” of its potential. She goes on to say that inflation has been running below target and that unemployment is still too high. As such, Yellen concludes that the Fed will continue to use monetary policy tools to promote a more robust recovery.

 

On the question of QE, Yellen says that a strong recovery will enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools. She adds that supporting the recovery is the “surest path to returning to a more normal” approach to monetary policy.

 

So while the tones are certainly dovish, it’s impossible to infer precise policy thoughts from her remarks. She clearly views that the economy has not yet reached a strong enough trajectory but is she making a grander point that they won’t start tapering until the data is better than now?

 

Or does tapering to $70bn, $50bn, $30bn etc a month still represent supporting the recovery. Indeed, it’s difficult to infer anything concrete regarding the path of monetary policy from Yellen’s prepared comments.

So while dovish, he implies that perhaps the market is experiencing a little to much confirmation bias.

BofAML also notes that markets read her comments as dovish, inferring that she might wait some time to taper Fed asset purchases… but disagree with that interpretation.

Markets see prepared statement as dovish

 

Janet Yellen, the current vice chair of the Federal Reserve and nominee to replace Ben Bernanke as Fed chair, released a brief prepared statement (see full report for footnote) Wednesday afternoon, ahead of the Senate Banking Committee hearing that begins at 10 AM ET on Thursday, November 14. Markets read it as dovish, particularly as many commentators expected her to retreat to a “balanced” (i.e., more hawkish) position. We view her comments as supporting continued Fed accommodation, consistent with ongoing official FOMC statements but not revealing any specific policy plans. Overall we expect continuity in Fed policy following her confirmation.

 

Support for dual mandate and inflation target

 

No surprise, Yellen’s text confirms she strongly supports the Fed’s dual mandate. She acknowledges progress in the recovery (to push back against the inevitable suggestion on Thursday that Fed easing has been ineffective), but notes unemployment is “still too high” while inflation may remain below the Fed’s 2% goal for some time. Hence, she concludes, the Fed “has more work to do.” To front-run questions that presume she will be too soft on inflation, Yellen notes that she “led the effort to adopt … a 2% goal for inflation.” This, she argues, sends a “clear and powerful message” that “has helped anchor the public’s expectations” for “low and stable” inflation. Expect her to repeat this argument multiple times on Thursday.

 

The taper question, ultimately

 

Yellen states that “supporting the recovery today is the surest path to a more normal approach to monetary policy” – in other words, policy needs to remain easy now to tighten later. Additionally, “a strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases.” Early commentary focused on the word “ultimately” as a possible signal that Yellen does not plan to taper for a while.

 

But “reduce its monetary accommodation” typically has meant rate hikes in official Fed communication, while reducing “reliance on unconventional tools” likely refers to the eventual reduction in the size of the Fed’s balance sheet rather than tapering. Recall, most Fed officials take a “stock approach” to QE; in that view it’s the total amount of assets owned and not the purchase pace that defines the degree of accommodation. No doubt she’ll get questions about the Fed’s tapering plans on Thursday.

 

On financial stability

 

Yellen further pledges to continue to support Fed efforts to address financial stability concerns. She emphasizes supervisory and regulatory tools “to reduce the threat of another financial crisis,” but notes that the Fed also is taking financial stability “into consideration when carrying out its responsibilities for monetary policy.” This suggests she may be open to tightening policy to address bubble concerns. Look for her to be questioned on whether there are bubbles now (expected answer: no, or at least not systemic) and how the Fed should respond to such risks.

One thing appears clear – QEeen Yellen will bring continuity to Fed policy once she is confirmed… but a taper may still be on the table.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/y3TfcPsxc2k/story01.htm Tyler Durden