Dear Diary,
Let us begin with some criticism from a reader:
What you said about Janet Yellen is disrespectful to All Women. You said you meant no disrespect, and then you go ahead and say most women her age are baking cookies for their grandchildren and saying she has soft shoulders.
You would not make the same kind of sexist comment about a man holding the position that she does. You should grow up… your comments are so old fashioned and out of touch. If you are going to put someone down because you don’t agree with what they are doing, resorting to sexist commentary as a metaphor only makes you look like the fool.
Ouch! We thought we headed off this kind of complaint with our frank alert a few weeks ago.
Didn’t we warn readers?
Sexist… ageist… religionist… racist… abilityist… intelligencist. We are an equal opportunity offender. We disrespect all groups without favor or distinction. Especially those we like.
Besides, didn’t we advise those with delicate feelings and hypersensitivities to cover their ears and eyes, lest they discover some calumny?
The dear reader says she speaks for “All Women.” We don’t know if she’s polled them all… but wow! We offended half the world’s population in a single paragraph. And without even breaking a sweat.
And we stick by our point: It’s better to bake cookies than to wreck the world’s biggest economy! So, let us divert the conversation, from our personal failings to the coming disaster.
Phony Demand
Our latest insight is that the above-referenced Ms. Yellen claims to be adding to “demand” by keeping interest rates at their lowest level ever. But she is, in fact, reducing it.
As French economist Jean-Baptiste Say pointed out, “products are paid for with products.” Demand comes from output, not the printing press.
In other words, people who produce things have the means to buy other things. If you produce nothing, you can buy nothing – no matter how much money the central bank prints. (At least not in any sustainable way.)
That lesson has been learned and relearned over centuries. Real demand comes from real output… and real wealth. And real wealth is the result, not the cause, of a long, hard process of saving and applying those savings to wealth-producing activities.
Starting new businesses. Building new factories. Developing newer, cheaper, better products… and finding better ways to deliver them.
Zero interest rates discourage saving. The saving rate today is only half what it was in the early 1980s. Why save money when it earns you so little – even negative – interest?
Also, EZ money reduces output. The rate of new business startups in the US has gone down. So has the rate of real business investment. Instead, the Fed’s EZ money is spent on cheap tricks: M&As, share buybacks, equity stripping… etc.
This has coincided with a decline in growth. Following the dreadful performance of the US economy in the first quarter, the consensus view for this year is GDP growth of just 1.7% – way below where it ought to be for this point in a “recovery.”
Yellen’s Stock Market Call
Yellen’s policies – principally ZIRP and QE – have succeeded in transferring trillions of dollars of wealth to the insiders on Wall Street… and they’ve helped keep those in power in power.
But they have failed to produce generalized prosperity. In fact, they have depressed the economy – resulting in lower wages… and lower growth.
But Yellen, who should be bouncing grandchildren on her knee (or whatever grandmothers do that is still politically incorrect to mention), is instead becoming a bigger and bigger nuisance.
In her most recent testimony before Congress, she not only assures most investors that they are on solid ground, she advises others where to put their money:
[V]aluation measures for the overall market in early July were generally at levels not far above their historical averages, suggesting that, in aggregate, investors are not excessively optimistic regarding equities. Nevertheless, valuation metrics in some sectors do appear substantially stretched – particularly those for smaller firms in the social media and biotechnology industries.
See how easy investment analysis is? Even a Fed chairman can do it. “Get out of social media and biotech,” Yellen urged investors. “Buy blue chips and the broad market.”
She is not just making headlines; she’s making history. As far as we know, no other Fed chairman has ever offered sector analysis!
We’d like to see her portfolio. Here is a woman who not only observes markets; she also moves them.
Was she short social media and biotechs?
In the event, investors sold the sectors Yellen warned against… and bought the broad market… sending the Dow back into record territory (in nominal terms, at least).
What a fortune you could make if you knew what she’d say next! And what a dope you’d be if you believed her.
Regards,
Bill
