Who is Janet L. Yellen and Why You Need to Know

Posted on September 13, 2007 , filed under Stocks | Print This Post

If you were an FOMC member or close personal friend of Ben Bernanke, most people would trust your advice on rate cuts. Fortunately, while none of us are close confidant’s of Bernanke, we can glean some well heeled advice from Janet L. Yellen, the President of the Federal Reserve Bank of San Francisco. If you are at all concerned about Federal monetary policy you need to know who Janet Yellen is because she has been 100% correct in all her advance hints about rate cuts.

Readers of my blog know that I like to research news that may slip by unnoticed. On September 10th, 2007 Yellen gave a speech titled, Recent Financial Developments and the U.S. Economic Outlook, to the National Association for Business Economics.

Here are a few notable quotes from Yellen’s speech:

Beginning in mid-July, global financial markets became highly volatile and increasingly averse to risk. In the U.S., perhaps the most dramatic illustration of the ensuing flight to safety was the decline in the three-month Treasury bill rate, which dipped by almost 2 percentage points between mid-July and August 20th.

Of greater relevance to monetary policy are movements in the borrowing costs facing households and firms, since it is these interest rates that influence spending decisions and aggregate demand.

Moreover, some markets have become downright illiquid; in other words, the markets themselves are not functioning efficiently, or may not be functioning much at all. This illiquidity has become an enormous problem for companies that specialize in originating mortgages and then bundling them to sell as securities. The markets for selling these securities have all but dried up, except for the lowest-risk, “conforming” agency mortgages that can be sold to Freddie Mac and Fannie Mae. And a market where many firms, including financial institutions, get short-term funding is illiquid as well, namely, the market for asset-backed commercial paper—short-term business loans that are secured by other assets, often mortgages. With liquidity problems in the markets in which many mortgage companies both sell assets and borrow, these firms have faced serious challenges, and a few have gone out of business.

Depository institutions also face some illiquidity, specifically in the funding markets for maturities in the one- to six-month range. Compounding their liquidity problems are concerns that mortgages and other assets that are normally securitized may come back onto their balance sheets and that customers may draw on unsecured credit lines.

For the conduct of monetary policy, the main question is how recent financial developments and other economic factors affect the outlook for the U.S. economy and the risks to that outlook. The reason this is the main question is that monetary policy’s unswerving focus should be on pursuing the Fed’s mandated goals of price stability and full employment.

…I believe it is critical to take a forward-looking approach—gauging the effects of recent developments on the outlook, and, importantly, the risks to that outlook.

This and previous speeches given by Yellen are linked on the website of the Federal Reserve Bank of San Francisco here: http://www.frbsf.org/news/speeches/.

I found the following analysis of Yellin’s speech on a kitco article, Hyperventilating Hyperinflation by Roger Wiegand.

One of our favorite World Champion Economist’s, whom we revere for his clear thinking and experience is David Rosenberg at Merrill Lynch. Mr. Rosenberg released a two pager analyzing Janet Yellin’s talk and pronounced her speech “a hard-hitting and sober assessment.” Yes!!

David told us, “First, it is worth noting that while she is not a current voting member of the FOMC, she is a highly regarded senior Fed official whose words carry a lot of weight.” We might also add Janet’s opinions have been 100% consistent with overall FOMC voting and attitudes. She has not opposed any of them even once. This tells us when she speaks, that is probably the internal, unspoken consensus within the group and her ideas and opinions are where this bunch goes next. Bottom line says, rate cuts ahead to save the immediate world.

I have to say that from reading Yellen’s speech, the conclusion is that the Fed must take forward leaning action in cutting interest rates to reduce borrowing costs facing households and firms.

In my previous article, The Fed’s Possible Monetary Policy Direction, I wrote that:

I expect to see a large pop in financial and precious metal stocks that have taken a beating. I am watching to see if major commercial banks Citigroup Incorporated. [[C]], JPMorgan Chase & Company [[JPM]], Bank of America Corporation [[BAC]] and Deutsche Bank AG [[DB]] trade closer to their 52-week highs to see if a broader medium-term rally is shapeable.

My stance currently remains the same.

*Disclaimer: The author owns no positions in any of the stocks mentioned in this article.

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1 Comment »

Comment by Ames Tiedeman

2007-09-22 10:05:54

Gold will go way up, maybe to $1,500 an ounce or higher because the dollar will fall for years. The dollar will keep falling and here is why:

The U.S. cannot sustain 800 bilion a year trade deficits. We cannot export our way out of this mess. The only answer is a sharply lower dollar to drive manufactruing home and to lower the trade deficit. The dollar has much farther to fall. What you are seeing is a long term effort (it will take 20 years) to get the trade deficit back under 1% of GDP. We are currently running a trade imbalance of nearly 6% of GDP. No nation can do this. The IMF would be stepping in to help any nation if its trade imbalance went to 6% of GDP becuase its currency would collapse! The U.S. is different, but still, we cannot sustain a trade deficit of this magnitude. People must understand that when we buy an item from say China, we pay in dollars. The Chinese company we just bought from them goes to an Exchange Bank in China and converts those dollars to Yuan. The Chinese banking system (Chinese Government) is now sitting on those dollars. They can either 1, buy oil, 2, buy Treasuries, 3. buy U.S goods, 4. buy U.S. Corporations, 5. other. Over time if we (the U.S. ) continue to run a trade deficit we could simply be completely bought and controlled by foreigners. Warren Buffet has explained the situation as being like a rich Texas farmer who loses a small piece of his land year after year and never notices for a while. When he then notices, tragedy sets in because he no longer controls his land. So in sum, we need to get the trade deficit way down. This is why the Fed has abandoned the dollar. It wil be going down for the next 20 years. That is how long it is going to take to correct this imbalance mess. Bottom line: Lower, much lower dollar will equal higher inflation and higher GOLD prices. Much higher!

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