Fleeing The Fed Ship

George Yacik - INO.com Contributor - Fed & Interest Rates

William Dudley, the president of the Federal Reserve Bank of New York, has become the latest senior Fed official to announce his retirement. He follows Fed Vice Chair Stanley Fischer, who announced his intention to resign in September, and Daniel Tarullo, the central bank's top financial regulator, who announced his resignation back in February.

Of course, the biggest departure at the Fed was one that wasn’t voluntary, namely President Trump decision not to renominate Janet Yellen for another term as Fed chair, ignoring 40 years of precedent to reappoint a sitting Fed chief. Instead, of course, he nominated Fed governor Jerome Powell to replace her when her four-year term ends in February. Still, Yellen is entitled to finish her 14-year term as a member of the Fed’s Board of Governors, which doesn’t expire for another seven years, on January 31, 2024, although her staying on would also be unprecedented.
All told, there are now three open seats on the seven-member Board of Governors, which of course may rise to four if Yellen elects to leave.

It’s pertinent to ask, then: What are all the departures at the Fed, both voluntary and involuntarily, signaling? Is it simply senior officials graciously moving aside to let a new president get a chance to pick his own people? Or is there something more sinister afoot, namely, do they indicate that a big change in the market is about to occur and they want to get out before the chickens come home to roost? Continue reading "Fleeing The Fed Ship"

Janet Yellen's Final Exam

George Yacik - INO.com Contributor - Fed & Interest Rates

Although he professes to “really like her a lot,” President Trump appears to have made up his mind that that the next chair of the Federal Reserve won’t be the incumbent of the past four years, Janet Yellen.

On Tuesday, according to media reports, the president asked Republican senators for a show of hands on whether they favored current Fed governor Jerome H. Powell or John B. Taylor, the Stanford University economics professor and frequent Fed critic. Results of the informal vote weren’t disclosed. On the same day, the New York Times ran an article comparing the “finalists” for the Fed chair position, mentioning only Powell and Taylor, even though the White House has said Trump is considering three additional candidates, including Yellen.

So it now looks like it’s a two-man race between Powell and Taylor. Trump has promised to make an announcement any day, at least before his trip to Asia at the end of next week.
Regardless of who he chooses, it’s certainly an appropriate time to review Yellen’s tenure as Fed chair, either as a historical exercise or as an indicator of what we can expect for the next four years in the event she is reappointed. Let’s look at some of the main points. Continue reading "Janet Yellen's Final Exam"

Is Janet Coming Back?

George Yacik - INO.com Contributor - Fed & Interest Rates

A lot of names have been thrown around to be the next head of the Federal Reserve. But who is the most likely person President Trump will name?

The current occupant, Janet Yellen, has to be considered the front-runner, although that doesn’t necessarily mean she’ll be renominated. Indeed, I would put the odds of her being reappointed at less than 50-50 – a lot less.

She does have several things going for her. First and foremost, she’s a known quantity. The markets would certainly be happy if Yellen were reappointed, if for no other reason than that they’ll know what they’re getting. With the major stock indexes all at or near all-time highs, and the bull market already nine years old, the market doesn’t want anything untoward to upset the status quo.

But as we should know well by now, stability isn’t exactly Trump’s comfort zone. Two weeks ago, he had no problem telling investors in billions of Puerto Rican bonds that they could pound sand, which caused a major meltdown in the price of those bonds (administration officials subsequently walked back his remarks).

Would he risk something like that happening to the entire bond and stock markets by not reappointing Yellen? (Even if she doesn’t get reappointed as Fed chair, Yellen’s term as a member of the Fed’s Board of Governors doesn’t end until January 2024, although it’s expected that she’ll resign if she’s not renamed as chair).

Besides the stability factor, the main reason why the markets like Yellen, of course, is because, in the words of Mr. Trump himself on the campaign trail in May 2016, “She is a low-interest rate person, she’s always been a low-interest rate person, and let’s be honest, I’m a low-interest rate person.” He reiterated those feelings in July in an interview with the Wall Street Journal, in which he added, “I think she’s done a good job.” Continue reading "Is Janet Coming Back?"

Oil Price 'Risk Premium' to Play Out Over 4Q17

Robert Boslego - INO.com Contributor - Energies

The Energy Information Administration (EIA), International Energy Agency (IEA) and Organization of Petroleum Exporting Countries (OPEC) each released their monthly global oil assessments and projections. They agree that the global oil glut will not be whittled down to anywhere near OPEC’s target of the 5-year OECD average by year-end. Their numbers also imply that global inventories in 1Q18 will build.

The EIA numbers indicate that stocks will be 130 million above the average, just slightly below September’s estimate at end-March.

Global Oil Inventory

OPEC does not project its own production, and it, therefore, does not produce future global inventory levels. But assuming September OPEC production for 4Q17 and 1Q18, stocks will drop by 51 million barrels in 4Q17 and rise by 74 million in 1Q18, a net gain in inventories from September. Continue reading "Oil Price 'Risk Premium' to Play Out Over 4Q17"

IBB - A Clearer Runway Ahead

Noah Kiedrowski - INO.com Contributor - Biotech


The Biotechnology cohort has finally made up much of the lost ground during the pummeling from both sides of the political aisle during the 2016 presidential race. Tweets and excerpts during the campaign trail from Hillary Clinton, Bernie Sanders and Donald Trump put the biotech cohort through the wringer via aiming for drug pricing. The sustained sell-off lead to the entire cohort to sell off from all-time highs of $400 to $240 or 40% in only 6 months as measured via the iShares Biotechnology Index ETF (NASDAQ:IBB). From February of 2016 through June of 2017 IBB traded in a tight range from $250 to $300 while Donald Trump continually fired shots against the healthcare sector. Any healthcare related stocks became volatile on the heels of any statement or tweet from Donald Trump. Shortly after the inauguration, Trump stated that drug companies are “getting away with murder” when speaking to the drug pricing issue. As the proposed healthcare legislation appears to be dead as of now, a level of certainty has entered the picture, and the drug pricing threats are not perceived to be as bad as initially feared. Recently the index has had a resurgence moving to a 52-week high of $335 with a much clearer runway ahead as the political headwinds continue to abate. As the confluence of abating political threats, drug pricing certainty, and continuity of the current healthcare backdrop, I feel the index has room to continue its upward trend and retrace its 2015 level of $400. Continue reading "IBB - A Clearer Runway Ahead"