Yellen Goes Rogue... Something or Nothing?
Yellen goes rogue – something or nothing?... What her interest rate talk tells us... The government is borrowing even more than it previously said... The media gets it wrong again... More gold versus bitcoin postgame...
Was it much ado about nothing... or dubious foreshadowing?
For a few hours yesterday, it looked like U.S. Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell had some financial soap-opera-style "beef."
It all stemmed from this...
In a prerecorded interview, Yellen – now the top economic official for President Joe Biden – said that the Fed, our central bank, might have to raise interest rates "somewhat to make sure that our economy doesn't overheat."
On facts alone, Yellen was saying what many investors know – economic growth and more recovery should eventually lead to the Fed inching its benchmark interest rate a little higher.
That move, in theory, could "cool" the economy by making borrowing dollars a little more expensive. Yellen is far from the first person in the world to suggest this idea.
But her name is probably familiar to many of you because Yellen is a former Fed chair herself, from 2014 to 2018. And once again, she is no longer simply a regular U.S. citizen, as she has been over the past two years.
Said another way, Yellen's words get attention today...
As the current Treasury Secretary, she was speaking yesterday at an online economic forum hosted by media outlet the Atlantic as part of a presentation titled the "Biden Recovery Plan."
Based on her previous role, she's also fully aware of the veil of "independence" the Fed claims it wants to protect. By that, we mean – again, in theory – that the central bank of the U.S. shouldn't listen to what anyone outside of its halls says...
Powell says it over and over again in public statements.
Looked at from this angle, Yellen's words could be taken as a past Fed chair and the White House's top economic policymaking official telling the current one how to do his job...
Take your independence and you-know-what.
Maybe she was speaking out of old Fed chair habit, but whoa. And that was just the start...
In the next sentence, Yellen said future government spending proposals – like the infrastructure package being talked about now – could also "cause some very modest increases in interest rates" themselves.
Essentially, she was publicly saying that if the White House gets what it wants – which is more "fake money" to spend – it could directly lead to overheating the economy to the point that central bank action would be needed.
In other words, the central bank could be forced to raise interest rates sooner than it says it will right now – which is the year 2024, based on its internal projections.
All while the government borrows more and more money from itself to begin with (paying interest on it, too). And that number is growing even more than we thought...
We can't make this stuff up...
Earlier this week, the Treasury Department updated its second-quarter borrowing estimate to $463 billion, compared to the $95 billion it estimated in February. This is the same Treasury Department that has been sending out those stimmy checks to millions of folks nationwide.
Yikes, but it's the truth...
It seems the age-old answer to the question "Who will pay for all of this?" is still all of us... whether any politician lets it slip or not, or most people know it or not.
And we haven't even mentioned taxes yet.
By the end of the day yesterday – via another media event with the Wall Street Journal – Yellen had backtracked... She said she wasn't making a prediction about interest rates, and that if anyone understands the Fed's independence, it's her.
That's exactly right... She knows how to play the game.
We wouldn't be surprised at all if Yellen let her opinions fly deliberately to let her ol' buddy Powell know what she and her new bosses at the White House are thinking.
We don't believe for a second that this is the first time the idea of higher interest rates due to more spending heating up the economy – or for any reason, for that matter – has been discussed in Yellen's office or at the White House.
At the same time, yesterday's story provided a different key takeaway for us...
It was the latest example of why we simply can't stand the mainstream financial news...
It's like they're trying to cause a sell-off.
Not long after Yellen made her comments shortly after 11 a.m. Eastern time during the Atlantic's "Future Economy Summit," financial infotainment outlets like CNBC were running with a story, but not the story...
They were saying that stocks, particularly tech stocks, were selling off as a direct result of Yellen's words... the theory being that these high-flying companies rely more on borrowing (and thus, do better with lower rates) than other conservative businesses.
The problem is... yesterday's sell-off had already been happening for the first two hours of the trading day before Yellen even started talking.
Our Stansberry NewsWire editor and 20-year Wall Street veteran C. Scott Garliss told us today that Yellen's comments played no role in yesterday's stock market slide.
We did some simple research and could see why...
By the time Yellen spoke, the tech-heavy Nasdaq Composite Index was already down about 3% from Monday's close. And when the day was done, the index actually finished on a slight rebound after the Treasury secretary went rogue.
The real reason for most of yesterday's selling, according to Scott, was that institutional money managers and traders saw that more countries and states (like New York, New Jersey, Connecticut, and Florida) are talking about removing pandemic-related in-person restrictions.
As Scott wrote yesterday morning in our free NewsWire service, the number of people getting COVID-19 vaccines continues to increase. And more important, it's the catalyst for a shift in allocations from "work at home" stocks to "old economy" plays. As he wrote...
That's weighing on high-flying technology stocks. They were a primary beneficiary of the remote-connectivity trend. Wall Street money managers and traders are wondering if a return to normal means many of these companies have seen peak near-term sales.
So, investors are cashing out of growth stocks and back into old-economy plays.
If anything, this whole episode shows just how careful you must be about which outlets you listen to for your information. (We could write about an example every single day if we thought it was useful.)
Inaccurate headlines from the media aside, it also reminds us that there's more to the economy than what Powell tells us about it.
What Yellen said could be much ado about nothing... or it could foreshadow what's to come. The curious skeptic in us leans toward the latter.
For more on this idea, be sure to check out tomorrow's Digest...
Scott, who does a terrific job leading our NewsWire team and reads more headlines than anyone we know, will share more detail about what the mainstream media is missing... He'll also talk about what the economy looks like now, what the Fed is really planning to do next (whether Yellen's words are considered or not), and what real action by the central bank could mean for U.S. stocks.
How to Play Gold and Bitcoin
Our colleague Daniela Cambone spoke recently with Echobay Partners founder Vince Lanci about the great debate between gold and bitcoin. In the interview, Lanci explained that when looking at the two assets, owning both can be successful – as long as you're strategic...
Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.
New 52-week highs (as of 5/4/21): American Financial (AFG), Altius Minerals (ALS.TO), Axis Capital (AXS), Brunswick (BC), Berkshire Hathaway (BRK-B), Brown & Brown (BRO), CBOE Global Markets (CBOE), CBRE Group (CBRE), Corteva (CTVA), Commvault Systems (CVLT), CVS Health (CVS), Quest Diagnostics (DGX), Dow (DOW), Expeditors International of Washington (EXPD), Comfort Systems USA (FIX), W.W. Grainger (GWW), Home Depot (HD), Hershey (HSY), iShares U.S. Home Construction Fund (ITB), Lennar (LEN), LGI Homes (LGIH), Cheniere Energy (LNG), MasTec (MTZ), Northrop Grumman (NOC), Invesco High Yield Equity Dividend Achievers Fund (PEY), S&P Global (SPGI), Travelers (TRV), United States Commodity Index Fund (USCI), Valmont Industries (VMI), Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP), Waste Management (WM), and Alleghany (Y).
Today's mailbag features more discussion stemming from our colleague Dan Ferris' latest Friday Digest, including a reply to Dan from a Stansberry Alliance member. What say you? As always, send your questions and comments – praise or rage – to feedback@stansberryresearch.com.
"Good morning, Dan, your comment to Jim S. concerning politics was spot on! I appreciate your courage in calling out the idiots in D.C. Keep it up!" – Paid-up subscriber Nancy V.
"Dear Mr. Ferris, thank you for your wonderful insights. You're an absolute gem, and it's a pleasure to read your commentaries." – Paid-up subscriber Virginia K.
"Hang in there Dan. I agree that it is both of the political parties in power that have let the American people down. But it is the American people who have let themselves down by voting back into office the majority of these lifetime politicians. They go to office broke and come out multi-millionaires with a lifetime pension yearly of more than I make a year.
"Now they want to take what I have saved over the past 55 years and give it to someone else. Worse yet, to some other nation who does not support the USA. So yes, we need to stand up and spit in their eye and vote them out of office or put through term limits." – Stansberry Alliance member Phill N.
"Dan, well said. If the masses of folks had the cajones you display, we most likely wouldn't be in the crap hole we're in today." – Paid-up subscriber Mike W.
"In response to Dan's and reader's comments about my feedback on Dan's Friday Digest:
"Believe me I never would want Dan to shut up and not speak his mind. I just believe that the facts and logic in his excellent analysis are enough to make his case without the divisive or heated rhetoric. Colorful words may be needed to keep readers engaged but too many are a distraction.
"I like to believe that, though divisive and heated speech might incite a mob, cool facts and logic will better win hearts and minds for the long haul. (It also makes it much easier to have a beer and conversation with my friends of diverse political persuasions.)" – Stansberry Alliance member Jim S.
All the best,
Corey McLaughlin
Baltimore, Maryland
May 5, 2021