There is an odd air of quiet hanging over the market. There is little new news from China, Europe, Japan, or from the US to impact how the market moves. This last week has been building up to Janet Yellen, Fed Chair, and her main speech that kicks-off the annual Jackson Hole Fed conference. It seems that every word she uses will be pulled apart. The result will be a conclusion, probably, one way or the other. The market will likely pick a horse and run hard and fast. My guess is that Yellen will be cautious and say the words needed to smooth the market. So the market will rally, even more.
Lastly, CNBC just intereviewed James Bullard, St. Louis Federal Reserve President. He was asked about the forecasting models used by the Fed and the asset bubble we all see today. Bullard said that the Fed models do NOT include asset bubbles, or any other bubbles, in their analysis. The Fed member said “we use judgement” to determine the impact of a bubble, if there is one, on the policy we would use to meet a forecast. I really cannot believe this. They make no attempt to include a causal model to evaluate the impact of policy on bubbles, or bubbles on policy? They just uses judgement? Wow – this is an eye opener. Surely we can model all manner of things including how bubbles may change, and how bubbles change behavior….