Goodbye, Janet Yellen – Here’s How We’ll Deal With Your Bearish Legacy

Janet Yellen said “Goodbye” to us, last week, on Thursday. 

After studying her moves over the past 4 years, beginning as a harsh critic, I say to her now, “Goodbye Janet, it’s been good to know ya.”

Here’s what Yellen said at her press conference last week, and what she has said and done before that caused me to change my opinion. More importantly, here’s why it matters to you and your investments.

You need to understand this, and you need to take action to at least protect yourself, if not profit, from the course that Yellen has set. It is a course that will not be easily changed.

Yellen’s Last Speech Started with Classic Misdirection…

On Wednesday Yellen held her final dog and pony show with the mainstream media hacks. Rather than repeating verbatim her usual rambling, circuitous answers, I’ll just summarize the key points that essentially reiterated the things we already knew, along with a few new wrinkles.

Yellen admitted that the Fed doesn’t quite understand inflation and she said that policy should remain relatively accommodative even if inflation overshoots their 2% target.

This is a misdirection for a couple of reasons. First, the Fed does not measure general inflation. It measures only a narrow, arbitrary, and artificially suppressed index of consumer goods and services prices. It excludes asset prices, and thus ignores, and even promotes and causes, the most dangerous kind of inflation-asset bubble inflation. When asset bubbles ultimately deflate, as the always do, they cause financial crashes because collateral values no longer are sufficient to cover the attached debts. Loans start getting called, particularly securities margin loans, and the downhill snowball begins.

We currently have asset bubbles driven by loose, overly plentiful, and cheap credit in housing, commercial real estate, stocks, bonds, and of course, bitcoin. When one of these starts to deflate, it will start a chain reaction that destabilizes the financial system. I believe that’s where we’re headed, although it’s probably at least a year to 18 months away.