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Federal Reserve's Yellen Short on Substance and Facts

 
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Washington, DC -- (SBWIRE) -- 07/02/2014 -- The Federal Reserve meeting on Wednesday, June 18, was full of Q’s and A’s. Many of the questions were pretty smart but the answers were weak and only a semblance of an answer, says Dawn Bennett, CEO and Founder of Bennett Group Financial Services . The Federal Reserve Chair Janet Yellen’s problems started when she said we do not have a stock market bubble and the U.S. economy is recovering. She also said that there is absolutely no inflation in the United States. There were complaints about her explanations to questions because she gave no substance according to Bennett.

David Stockman, the former director of the Office of Management and Budget (OMB) wrote about what she said on Wednesday in his Contra Corner blog, "The only thing that can be said about Janet Yellen’s simple-minded paint-by-the-numbers performance yesterday is that the Keynesian apotheosis is complete."

He then went on to write, "American c apitalism, and all political life, too, is now ruled by a 12-member monetary politburo, which is essentially accountable to no one except its own misbegotten doctrine that prosperity flows from the end of a printing press."

Bennett agrees Stockman is correct and for three years has been explaining the massive crater that the Fed has been digging, the more money they print, the weaker the U.S. economy becomes. All the Fed has done is lift asset prices and lift the cost of living for all Americans. The cost of living increases are higher than wage increases, so the average American is actually getting poorer, not wealthier, asserts Bennett.

But Yellen is saying everything is getting better, but it's not. Fed chair Yellen does not see any of it that way, especially regarding inflation. Americans have to notice that prices on food, water, gas and electricity, and almost anything else, is going up dramatically. Yellen wants us all to disregard what we we’re seeing in our daily lives, and she wants us to believe that inflation is completely under control, says Bennett.

Here is her latest reaction to Fed Chair Yellen's press conference on June 18:

We don't think Yellen is being malicious or intentional with her comments, but we do think that the inflation rate is way off. The way it’s now calculated has been changed so many times since the 1970s, almost 20 times in fact, that at this point it bears little relation to reality. This means the Fed's benchmark inflation indices are essentially meaningless, and we don't think she knows any better. In fact, if inflation were calculated the same way it was back in the 1980s, the inflation rate would be close to 10 or 11 percent right now, but you wouldn't know that by listening to Yellen.

The Bureau of Labor’s statistics revealed recently that the index for meat, poultry, fish and eggs has soared to an all-time high. If paychecks were increasing at the same rate as inflation, perhaps most American families would be able to weather all this. But unfortunately that is not the case. Inflation is an invisible tax we all must pay, and it is systematically eviscerating the majority of lower and middle class Americans, yet Yellen dismissed the Bureau of Labor's statistics as just "noise."

As for high income Americans who aren't being touched by this, we think most are stepping into another type of hidden trap. Yellen was asked, “If there was something out of place with the S&P 500 hitting an all-time high?” Her answer was "no," then she went on to justify her no frothiness comment by saying that the Fed has this stock model that they watch, and whenever they get a feeling of good or bad valuations, they let us know. So apparently, there are still good valuations on the stock market, using a model that just compares the yield of a 10-year treasury to the earning field of the stock market.

So she concluded that equity valuations are at an historical norm. In other words, no bubble here, right? But a number of people disagree. Even J. P. Morgan wrote after this, "even assuming trailing earnings are valid, sustainable and not goosed by the Fed itself, the most recent median S&P 500 price-to-earnings ratio as of this moment is higher than 89 percent of all PEs in the history of the market."

So equities have only been more expensive by just about 10 percent in the whole history of the S&P than they are right now, and she's tell ing us we don't have a bubble. The trend of overheated assets was also brought to our attention from the Financial Times opinion piece June 16, 2014 written by Kevin Warsh and Stanley Druckenmiller, where they reported that a cluster of central bank investors have become major players on world equity markets. The official report was also published this past week by the Official Monetary and Financial Institutions Forum where they confirmed that $29.1 trillion in stock market investments are being held by 400 public sector institutions in 162 countries. This is contributing to the overheated asset prices in the stock markets, including the U.S.

China's State Administration of Foreign Exchange has become the world's largest public sector holder of equities, and we suspect the U.S. Federal Reserve is not far behind. Central banks, including our own Federal Reserve, are the ones pushing up the stock market. We’re thinking it can't go on much longer since it's been five years of building out our debt balance sheets. Exiting this unprecedented and unconventional monetary policy will be very uncomfortable and painful.

All market data references are sourced to Bloomberg terminal database.

Bennett Group Financial Services LLC, based in Washington, D.C., is a comprehensive financial services firm committed to providing opportunities to clients’ as they seek long-term financial success. Its customized programs are designed with the potential to help grow, lower overall risk and conserve client assets by delivering a high level of personalized service and skill. For more information, call 866-286-2268 or visit http://www.bennettgroupfinancial.com.

Securities offered through Western International Securities Inc. (WIS), member FINRA/SIPC. BGFS and WIS are separate and unaffiliated entities.

About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program on called Financial Myth Busting http://www.financialmythbusting.com.

The show airs live on each Sunday at 11 am EDT. It now has over a year’s worth of achieved interviews for listeners free on-demand at http://www.financialmythbusting.com.

Dawn discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included Rock Legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN as well as take podcasts on the road and forums for interaction. The show is a great complement to Dawn’s monthly investing seminars that take place at Tysons Corner in McLean, VA, where she discusses in vesting.

She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett or dbennett@bennettgroupfinancial.com