August 26 2016 Market Minute

August 26, 2016

US Equity Markets were down a little this week with the NASDAQ losing -.65%, SP 500 about -1% and the DOW -1.35%. US Bond yields were also relatively flat. World Indices were mostly in line with the US, or slightly positive. Focus this week was on the ‘Economic Rocket Science’ going on in Jackson Hole, WY and Janet Yellen’s speech at the Annual Economic Conference. The Symposium’s topic this year is “Designing Resilient Monetary Policy Frameworks for the Future”. What I will refer to as Economic Rocket Science (ERS).

Yes, I am having a little fun with the term ‘ERS’. It is just my latest term/acronym to try and explain the historical significance of the experimental and unorthodox use of Monetary Policy by the SCB’s of the world.

Here’ the connection.

When engaging in Rocket Science 1 of 4 outcomes usually occur.

  1. Rocket takes off and fly’s as anticipated, thus working perfectly.
  2. Rocket explodes on Launch Pad
  3. Rocket takes off and explodes in flight
  4. Rocket takes off, starts to spin or go off course, and is thus ‘self destructed’ via ground control telemetry.

Thus the term I heard growing up, “It is not like it’s Rocket Science’, when describing everything but Rocket Science because everything is less complicated then this endeavor and can therefore be done easier than Rocket Science itself.

The ERS the SCB is engaged in could have 1 or more of the following outcomes.

  1. GDP grows faster and continues to accelerate thus pushing Inflation to 2%, thus working perfectly
  2. Liquidity Trap, No effect on GDP or Inflation.
  3. “…might inadvertently encourage excessive risk-taking and so undermine financial stability”, (Janet Yellen 8/26/2016)
  4. Unpredictable Scenario #1, #2, #3, ect.

Janet Yellen’s speech today noted the Fed’s ‘Toolkit’ and specifically points out that their “pre-crisis toolkit was inadequate to address the range of economic circumstances that we faced”. Ms. Yellen also said, when referring to ‘low bond yields’ here and abroad,

“…our understanding of the forces driving long-run trends in interest rates is nevertheless limited, and thus all predictions in this area are highly uncertain”.

SpaceX is making history by re-using rockets by vertically landing them. A truly remarkable feat. The SCB is trying to do the same with ‘Economic Rocket Science’ (ERS).

Source: US Federal Reserve, WSJ, Bloomberg News, Thompson One Analytics. US Bond Yields reference 10 US Treasury

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