Kass: Summers vs. Yellen
Importantly, let's not forget that Yellen was President of the San Francisco Fed, which had oversight responsibility for the country's largest mortgage lender, Countrywide Financial.
Summers has his own visible liabilities. As Treasury Secretary, he presided over senior Clinton administration officials who reached the fateful decision in 1998-1999 that there was no need to regulate a new family of financial transactions known as over-the-counter derivatives. Not a good call!
More Challenges Down the Line
Markets tend to glom onto the headline and, in the case of the Summers news, market participants (as they seem to do far too often) fervently overreacted. Maybe this wasn't surprising considering the upbeat market mood of the last two weeks.Late in the trading day yesterday, however, it seemed that the market was already changing its mind regarding the Summers decision, as interest rates reversed (bonds were down on the day and yields well above the morning's low), gold was barely higher and the Nasdaq traded much lower (Nasdaq futures closed down 10 handles after being up 35 handles at Monday's market opening). Finally, let's not lose sight of the fact that without a battle over Summers for confirmation, the administration might save its ammo for what is likely to be an extremely divisive budget debate. In fact, I suspect the market came in late in the day during and following an aggressively hardline speech by the President that raised the specter of a debt ceiling and budget deficit showdown reminiscent of the summers of 2010-2011. Indeed, after hearing Obama, I am more fearful of a possible government shutdown than the benefit of a Yellen appointment. In summary, despite Summers being out and Yellen likely being in, I am sticking to my view that we are at a market top; we just overshot by a bit with an unjustified market ebullience based on Summers' withdrawal as a candidate to be the next Fed chairman.
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