Chair Yellen's upcoming Jackson Hole appearance is worth watching for what she says about Americans stuck in part-time work. Jeez-louise, do you think she'll admit that the Fed's low-interest rate policy has little to do with this? Keeping interest rates low has kept non-viable businesses alive and priced many Americans out of first-time home purchases. It has had little effect on spurring new job growth, as the St. Louis Fed admitted in April 2013. Ms. Yellen is wasting her time if she thinks the Fed can solve the economy's structural problems with more credit. Anyone at Jackson Hole brave enough to dissent won't be heard among the crowds of central bankers snoring away.
Bond analysts tell investors not to worry about the fixed-income market's size in the mutual fund universe. This is too funny. Comparing the bond funds' size to the total fund universe and saying it's normal ignores how central bank stimulus has inflated equity valuations along with bond valuations. A normal share of a multiple asset bubble is still an inflated share. Comparing cash reserves to a previous bond market rout ignores the zero-interest rate policy that was not present in the last bear market. I don't know what bond analysts are smoking but they need to stay downwind of sane investors.
The ECB is not making that case to banks that its cheap cash is worth taking. Remember that the ECB is not the Fed. It does not have the same policy approach to repos or bank reserves. Euro-area credit institutions hold their reserves with their national central banks, not with the ECB, so enforcement requires more coordination than in the US. This means quantitative easing looks very different in Europe, and proceeds more slowly. I expect the ECB's LTRO to give way to more STRO, as the ECB learns the Fed's lesson of moving its duration pig-in-a-python toward the short end of the yield curve. This will of course increase the ECB's risk of insolvency, just as the Fed has larded up its balance sheet with low-quality assets. It also risks shutting off funding for the various troika bailouts in the eurozone, if interest rates rise. That would be very good for my personal bet against the euro.
These central banks are a rich source of sarcasm this week, if nothing else. They have no idea how much fun they add to my life.