Prepare for the Yellen Collapse

With Fed Chairman Ben Bernanke set to retire early next year, President Obama is reportedly hard at work, planning for his replacement.

To land the job, as a qualified candidate you must:

• Have a passion for money printing and destroying the value of the dollar.
• Lack the ability to make economic predictions or foresee major economic crises.
• Be competent in creating massive asset bubbles.
• Believe in financial central planning and show hostility toward free markets.
• Be willing to sock it to the middle class by creating inflation.
• Have spent most of your career in academia, particularly studying economic models that don’t work in real life. (If you’ve worked in the private sector and understand how economies really work, don’t bother applying.)

If you meet those requirements and are interested in being the next head of the Fed, hurry up and apply, because Obama already has a prime candidate in mind …

The former Treasury secretary and Obama administration economic adviser, Larry Summers, was reported to be the president’s first choice for the position, but he recently withdrew from the race. That leaves current Fed Vice Chairwoman Janet Yellen as Obama’s new front-runner.

I’m not surprised. She certainly meets all the requirements listed above.

She’s never worked in the private sector, instead choosing to spend her career in academia and government.

She also believes in rampant money printing. In fact, in recent years, Yellen has been one the most forceful advocates for Quantitative Easing. That’s why everyone on Wall Street hopes Obama will nominate her.

How about her belief in free markets? Well, back in 1999 she said: “Will capitalist economies operate at full employment in the absence of routine intervention? Certainly not.” That means she believes in heavy intervention from the Fed and thinks that, somehow, money printing will create jobs.

She is also incompetent in economic forecasting. Back in February 2007, before the housing crash and the global credit crisis, she said this about the housing market:

“The concerns we used to hear about the possibility of a devastating collapse – one that might be big enough to cause a recession in the U.S. economy – while not fully allayed have diminished. I think there is a reasonable chance that housing is in the process of stabilizing, which would mean that it would put a considerably smaller drag on the economy going forward.”

Just like Bernanke, she failed to foresee the crisis. She actually admitted her failure in 2010, when she testified in front of the Financial Crisis Inquiry Commission. In that occasion, she said: “I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system – I didn’t see any of that coming until it happened.”

That doesn’t exactly inspire confidence now, does it?

More of the Same …

With Yellen destined to be its next chief, you can expect the Fed to keep doing what it has been doing for the past decade: printing money and blowing asset bubbles.

Perhaps that’s why Bernanke can’t wait to leave. He knows that he has already planted the seeds of the next big crisis and he’s headed for the exit before it all comes crashing down. In a way, I feel sorry for Janet Yellen. She will have a giant mess to clean up.

There’s no question that the Fed’s reckless money printing and monetization of debt has boosted the stock market in the short term. Numerous asset classes have boomed in recent years. Those on Wall Street know this, which is why they want Yellen to be nominated.

But make no mistake. This will all end in a spectacular collapse.

Yet despite this, I still think the best strategy is to keep dancing until the music stops. For now, stay invested and make sure you use a trailing stop-loss for all of your positions.

However, make sure you’re dancing close to the exit door. Because when the music does eventually stop, only those who are prepared to exit the market quickly will be able to escape the worst of the coming bloodbath.

Regards,

Evaldo Albuquerque
Editor, Retirement Strategist