Yellen's Wand Is Running Low on Magic

By Doug French, Contributing Editor

How important is housing to the American economy?

If a 2011 SMU paper entitled "Housing's Contribution to Gross Domestic Product (GDP)" is right, nothing moves the economic needle like housing. It accounts for 17% to 18% of GDP.

And don't forget that home buyers fill their homes with all manner of stuff—and that homeowners have more skin in insurance on what's likely to be their family's most important asset.

All claims to the contrary, the disappointing first-quarter housing numbers expose the Federal Reserve as impotent at influencing GDP's most important component.

The Fed: Housing's Best Friend

No wonder every modern Fed chairman has lowered rates to try to crank up housing activity, rationalizing that low rates make mortgage payments more affordable. Back when he was chair, Ben Bernanke wrote in the Washington Post, "Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance."

In her first public speech, new Fed Chair Janet Yellen said one of the benefits to keeping interest rates low is to "make homes more affordable and revive the housing market." Continue reading "Yellen's Wand Is Running Low on Magic"

Taper to Carry … a Logical Chain

Below is the opening segment of this week's edition of Notes From the Rabbit Hole (NFTRH 246).  My friend’s request for a 'simple' road map ended up a bit wordy, but I think the chain is logical.

Mail from a friend:  "I think your taper-to-carry idea has legs, but I’d really appreciate it if you went over the basic theory and how you see the dots connecting, if you decide there’s space and time in this weekend's edition at least. What I’d really want is a simple road map, the logical chain if you will. Nothing fancy, just the way it may (repeat may) play out and what its consequences might be."

When this request came in I had already been thinking about trying to put this all together in a logical sequence since 'T2C' was graduated to an actual plan from a thesis last week.

The idea was first introduced in NFTRH 241 on June 2, which was the week that the BKX-SPX ratio broke out to the upside and long-term Treasury bond yields broke up from bottoming patterns.  In the ensuing 5 weeks the macro fundamentals and technicals have only become firmer in support of T2C. Continue reading "Taper to Carry … a Logical Chain"