Yellen’s Remarks Cause Markets To Anticipate The Impossible – Ep. 211

* 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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