Janet, I Call Your Bluff and Here’s Your Tell

At Janet Yellen’s latest speech in Rhode Island, she states, “… If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalizing monetary policy”.  Wow!  Either some poor intern has really mucked up some serious reports for dear Janet or this is just more of the Fed’s Hawk/Dove public sideshow still attempting to negate rational expectations by creating confusion around monetary policy actions.  I know where my bets are going but I feel like I need to have a quick chat with dear Janet.  So here goes….

Well Ms. Yellen, I call your bluff and let me show you your tell in the following chart.

Screen Shot 2015-06-03 at 1.35.58 PM

You see, I get that you find yourself in a terrible conundrum.  You understand as well as anyone that managing the trickle-less down recovery and the resulting tenacious dislocation between the market and the economy is becoming unmanageably expensive; about $13T to date.  And while the hint of a rate hike over the past year has sent the dollar up some +15%, some suggesting a sign of strength for the American economy, it really is not helping the situation now is it??

We all like to pretend that we are at full employment but deep down we know all those who moved out of the unemployment line moved into the welfare/disability/social security line rather than into employment.  This is clear by way of the labour participation rate dropping an equivalent amount by those falling off the unemployment radar.  And what is full employment anyway, right Janet?  Why, I can remember not too long ago, that 6.5% was our targeted full employment but let’s not split hairs over benchmarks.  6.5% or 5.5% or whatever we decide full employment is going to be it really doesn’t matter but for perception, that I know we agree on.

And that’s kinda the thing isn’t it Janet?  The 6 years of funding a trickle-less down recovery, hoping and praying that the market/economy dislocation (which is inherent in such a strategy) is reconciled by a rising economy rather than a crashing market this time around is beginning to wear thin as a viable strategy.  I feel your pain.  I’ve bled a fair bit of premium betting on a reconciliation of the dislocation as you have bled a fair bit currency, neither of us getting it right so far.  Forgive me this cheap shot, but I earned the premium I’ve bled and so it seems just a bit more real to me than to you I’m sure.  Nonetheless I can imagine things must be getting a little stressful there over at the Fed.

But going forward what is it that we are to do Janet?  We’ve lowered oil to offset rising food prices and to stimulate consumption but still demand is anemic at best.  And like a rising river in the face of being up shit creek without a paddle, we now see signs of supply side inflation creeping in as well.  This doesn’t bode well for real incomes and thus the perception of a stable consumer.  Consumer debt is back to peak and overflowing levels.  There just isn’t much more consumer debt to be distributed in order to keep selling all those cars and guitar lessons.  What are we to do Janet, when uncontrollable forces just refuse to fall into place??

Well Ms. Yellen I am, like you, still betting on the reconciliation, however, I expect we remain on opposite sides of this trade.  Now I know, I know I should never fight the Fed.  I get it.  But I tell you what, sometimes the sun even shines on a dog’s ass once in a while.  And so I call your bluff Ms. Yellen.  As Kenny Rogers once sang so sweetly, “I can see you’re out of Aces”.

By Thad Beversdorf, Chief Global Economist for ABX

10 thoughts on “Janet, I Call Your Bluff and Here’s Your Tell

  1. hello Mr Beversdorf,

    you seem to know the macro stuff. here’s a macro data to think about .

    there ‘s data set called daily treasury report, basically its how much taxes americans pay, its reported daily. so lets analyze latest 3 months of 2015 y, shall we?

    #personal income taxes

    2014 y/y%

    march 267960 8.17
    april 289784 11.10
    may 188279 4.51

    same months, 2014 year vs 2013

    march 247,728 8.01
    april 260,828 4.78
    may 180,152 0.74

    funny, USA goverment collected more taxes in last 3 months than in 2014 year.
    can you explained that ?

    same w/ corporate taxes

    2014 y/y%
    39,333 12.92
    44,869 4.99
    9,360 3.91

    so, according your article and that nonsense on zerohedge END OF WORLD IS JUST AROUND THE CORNER, but americans / enterprises pay more and more taxes ?

    can you clarify that ?

    good luck
    alex west

    btw, i asked tyler about this, of course no asnwer. so much for fight club.


    1. Let me take a stab at explaining the conundrum you present. Assuming all of your figures are accurate, it appears that your claim is that because the Treasury is collecting more taxes from individuals (whether natural of corporate), those individuals must be earning more money. While necessarily true, I don’t think the figures provide any information on the source of the income. The stock market has gained by leaps and bounds during the time period identified (see the graph the author provides and note the big climb that commences in 2014) so I would surmise that a large portion of the increase in tax collections is attributable to the gains realized in stock appreciation. I would also point out that you have provided a very small sample size (3 months of 2013 vs 3 months of 2014) so I’m sure there are numerous other possible explanations.
      I think you’ve entirely missed the point of the article

      1. @I think you’ve entirely missed the point of the article

        no. i didnt.

        author used chart called ‘usa macro’ that virtually collapsed , worst in years . fine .

        but why it didn’t show up in tax receipts? if economy is so bad, why more taxes collected ?

        as far as @small sample size@, do you even read my answer?

        I used 3 month sample for 2013, 2014 and 2015 years, 3 month cause gdp is reported quarterly, for example.


    2. Hi Alex,

      Thank you for taking the time to comment. I rarely reply to comments (I’m certain Tyler as well) only because it necessarily becomes a slippery slope, but allow me to reply on behalf of myself and my friends at ZH i.e. Tyler. I’m going to make you do a little thought on your own but I will take you half way to the answer. Do you understand the difference between total income and income distribution? That should get you there. Good luck sir.

      1. sorry, I didn’t explain better.

        i know there ‘re rich and poor folks in your country, and sir ‘income distribution’ in case of corp . taxes, it must be something new in macro field.

        my point is . you used chart called ‘usa macro’ that virtually collapsed , worst in years . fine

        but why it didn’t show up in tax receipts? if economy is so bad, why more taxes collected ?

        cant wait for answer.

        as far as tyler concerned, well tyler used to print charts from mr biederman
        and his trimtabs serivce as long as it suited his idea world is collapsing. no more. hard to explain ‘collapsing economy’ and growning tax receipts

        good luck

        1. Alex,

          Respectfully you are not thinking this through or perhaps you don’t have a sufficient understanding of economics. I will try one last time to bring you to the answer on your own. Before responding back, do attempt a bit of research. I promise you the answer is right before you and I am correct.

          1. Total income has very little to do with economic strength.
          2. Income distribution is the basis for economic strength by way of a mechanism described as (diminishing) marginal utility to consume.
          3. Imagine an economy with 100 people and $100. Now run through a scenario where one man earns all $100 vs a scenario where each man earns $1. Ask yourself how either impacts both taxation and money velocity.

          If you cannot get the answer from that I’m afraid you are not ready for this discussion.



          1. thank for you reply.

            #Total income has very little to do with economic strength.

            that’s funny, but what about GDP ? consumer final sales make up from 2/3 to 75 % of GDP , so do you imply GDP % up/dwn has little to do with economic strength ? where does consumer take money from ? from income, don’t they ?

            what about labor report? it reports number of jobs -+100.000 , but per se jobs don’t mean a thing , there’s a difference between 1.000.000 per year job, and 8 $/hour job at McDonald , dont you think?

            what’s the point in reporting USA economy created 99.000 jobs at Mcdonald, and 1 job at hedge fund ?

            still, why does ‘CORP taxes’ don’t correlated w/ USA macro chart? you didn’t answer.


          2. forgot to mention.

            #magine an economy with 100 people and $100

            I majored in math/CS, I do know what difference between average and median is , but from goverment standpoint is ALWAYS AVERAGE..

            so, even those 99 people don’t have job and income, according gov stats they do , and make at average 1 $ per person.

            median income would be ZERO.

            what do you think ?


          3. You’re starting to catch on. If median income is zero what happens to consumption (assuming no consumer credit available – remember consumption from debt is a net negative to medium and long term output) and remembering the law of diminishing marginal propensity to consume? Read the attached link and this should finalize your understanding of why your original point that increasing tax receipts has no correlation to a prospering economy. Also understand while each GDP print includes debt consumption, that debt consumption must be subtracted from future GDP unless of course consumer debt continues to grow perpetually in an amount sufficient to both pay down all previous debt and add to new consumption.


            And that will end this lesson my friend. Best of luck to you.

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