Monday, September 1, 2014

US Treasury 10 Year - NO "Conundrum"

Basically seeking a place to hang the following slides, both of 5 year UST Yield versus the sell 5 year UST and buy 30 year UST curve trade. But will provide a short discussion

I decided to do a scatter on this after reading the great analysis Jim Hamilton did on the US Treasury 10 year rally and how this was a "conundrum".  While very comfortable with his analysis of risk premium and GDP expectations - at first I was all set to agree - I decided to pull the data. I conclude there is no conundrum but a rare powerful technical move of the curve in anticipation of a sudden Fed Funds hike,  a hike that given the pressure building will certainly be well before year end 2014.  To my read it is akin to how the bay will empty of sea water prior to the arrival of the tsunami.

http://econbrowser.com/archives/2014/08/bond-market-conundrum-redux


Over the long run the 5:30 curve is an equivalency to the 5 year UST yield with usually a vol ratio (5 year UST YV/32) making a .4 outright 5 y UST to every 1 5y amount in the 5:30.

However that vol ratio is now flipped and is 1.4:1 outright to 5:30.

To me this is indicative of significant if not massive pressure on the curve to realign so as to be priced for a regime shift - since the 5 year is still anchored in ZIRP, it means the longer maturities rally harshly to flatten the curve.  Then after the Fed hikes, the curve will continue to flatten but the relationship of 5 y UST now normalized to the curve.

The surge in vol of the 5:30 relative to outright 5 y UST indicates to me a regime jump is about to occur, certainly well before year end.  That regime shift would be a surprise rate hike that will lead to a 2 1/2% to 3% 5 year UST imminently.

Note that the small formation under the 8/30/2014  is the worst of the crisis, when it seemed calamity was to occur, from December 08 to January 2009. It is unlikely we reach such a stressed position  so I suspect the 5 year (and UST yield in general) jumps suddenly to the prior regime.  That is marked by the yellow arrow.

Those who have done well in the flattener to date should swap that position for puts on the 5 y UST.




For open 9/8/2014 followup:

The 5 year UST vs the UST 30s to 5s did move from the above 9/2/2014 opening.  The 30s5s backed 6 basis points and 5 year UST backed 19 basis points, for a total net P/L impact, if you did the above swap, of 25 basis points or $8900 per million 5 year UST par amount.  So far so good.  I think there is a boundary at the data point of 8/29/2014 close.







Sunday, August 24, 2014

Federal Reserve "Dual Mandate" of Full Employment and Price Stability is Likely Unconstitutional and Radically New

 “Justice? - you get justice in the next world, in this world, you have the law.”
                                                                                                William Gaddis  JR

To most this clearly outlines a "dual mandate", a long running permanent foundation stone of the powers mandated to the Federal Reserve by Congress, an ubiquitous feature of monetary policy:

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate.

 November 2010 FOMC Statement.

From then on it was posted in one way or another in every FOMC Statement:

“Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate.

 July 30, 2014 FOMC Statement.

The "dual mandate" is not a legacy constitutional keystone that empowers the Fed but is radically new interpretation of the Federal Reserve Act.  The "dual mandate" is unconstitutional and is at odds with the academic literature on monetary economics and seems to be a "ruse" so as to allow the Fed to make economic policy - this its unconstitutionality.   

The “dual mandate” used in the Statement, the  official lawful communique by the Federal Reserve,  is new and a radical ambitious (mis)interpretation of the law so as to justify the current focus Board of Governors, as led by the Chair, have with employment.  

This citing of “dual mandate” with "maximum  employment" is the used and is necessary to  justify the current Odyssean Fed and the principles of “forward guidance”.  It empowers the Fed to subjectively and secretively define what is  “maximum employment” – now a slippery qualitative and complex mixture of 19 distinct measurements of employment characteristics, the LMCI,  and a radical de-emphasis on the unemployment rate (UER-3).

The Fed's power rests on the “dual mandate” as defined and offered by the  Board of Governors, specifically the Chair, deploying the English/Alvarez/Bernanke invention of the centrality of employment as the mainstay  for "communicative" policy.  The use of the dual mandate is not a consensus of  Federal Reserve staff, nor with the staff at the Board of Governors.   There is deep concern that the emphasis on employment, now qualified by the economic intuition of Yellon,  is an incorrect interpretation of the law and is either a theoretical non sequitur or a deliberate academic falsehood, a ruse.

Empowerment for current Fed forward guidance monetary policy rests upon the constitutionality of the “dual mandate”, in particular for the Fed to apply monetary policy, provided it does not cause undue inflation, to reach a subjective constantly changing definition of  “full employment”.

This is stress on employment is not reconciled with the Federal Reserve Act original intent nor by the amendment of 1977 and 1978.  The 1946 Employment Act does grant the President, or rather charges the President to table policy to Congress to provide “maximum employment”, and the 1978 Act does request the Fed to coordinate with that Executive defined policy.  But it is clear if the President does not table such policy and Congress does not insist upon the Executive to do so, the Fed is not to intercede or fill in the vacuum with monetary policy.

If the “dual mandate” is now offered at the end of a paragraph that sites the true mandate the Fed does have granted by Congress   starting with  “Consistent with its statutory mandate”, it is a legal ploy by the Fed to end that paragraph with seemingly a repeat of the “statutory” with “dual mandate” but now, unlike the language of the statue is states “maximum employment”.
Thereby the Fed “switching” the statutory mandate of conducting mandatory policy  “ commensurate with potential production” with “maximum employment” is to switch a forward view of not impeding potential production being reached, and thereby the resulting in the sweet spot of “maximum employment”,  with the  proactive current policy that has “maximum employment” as the only economic objective.

Since this cannot have gone unnoticed by the Board of Governors, I am certain that there has been discussion at the highest levels with the involvement of Alvarez etc, so  the use of "dual mandate" is a deliberate redefinition of the law by the Fed – and is therefore unconstitutional.  

The ability to show there can be a reasonable argument in that “dual mandate” is an incorrect read of the law, that the debate can even be had by thoughtful people both in the Fed and outside, should cause great concern.  If in fact the argument prevails that the wording “dual mandate” is an incorrect read, perhaps to serve a political agenda by certain ascendant groups in Congress, will be devastating for the Fed and likely ends with Yellen’s dismissal. That will  take place if,  though well-meaning in terms of public service, the “dual mandate” does not work and then it will be easily shown it is a new legal ruse justifying a radical progression of the Fed to write macroeconomic policy for which they do not have the mandate or the constitutional power.
What further compounds this problem and heightens risk is that the replacement of Federal Reserve Act "production" with its many facets, with just  employment is an unproven and keenly debated thesis which involves the Phillips Curve, wage stickiness and many other confusing and unknowable economics.  Employment has been massively disturbed by a once per century economic event, a solvency event, and it is not even known why unemployment rose as it did and why it is dropping in the fashion it is now. The various ways of describing unemployment are also not calibrating with  “demand side” of qualified labor showing an extremely strong if not on the edge of a bubble economy while unqualified workers and many of the supply side metrics of labor show a lack luster economy.

This is not the time for the Fed Board of Governors and FOMC  to rewrite law.

Yet the public and strangely almost all those in the financial industry are uncritically accepting of the Fed’s radical rewrite of law.  Most have the adamant view that “dual mandate” is written on bedrock and are derisive or dismissive when someone points this out. That they "know" the dual mandate was the intent of Congress and it has always been with us, at least since 1977.

But the reality is that before the November 2010 Statement, the dual mandate of employment and inflation  was an abstract or descriptor of what the Fed did, a shorthand even, and was never considered to being the statutory mandate.  “Dual mandate” was economic slang,  describing  what the Fed would monitor and consider but not the  statutory mandated objective. It was the “effect” and not the “cause”.  The original clause was a different “dual” – that of inflation and low long term interest rates. The title sentence of the Federal Reserve Act to this date does not even mention employment but states:

“An Act To provide for the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.

The Federal Reserve is not to write economic policy but first and foremost provide a Bagehot/Kindleberger central authority that provides lender of last resort services and maintains liquidity through the acquisition of assets from the private sector.  This is the most inspired public policy since Hamilton created the US Treasury and national fungible debt. And of course it is why the USA did not enter into depression in 2008.  But once that courageous and wonderful duty was implemented for the nation, the Fed – likely for a myriad of reasons – decided they must focus solely on “for other purposes” as they interpreted.

The first Congressional act that dealt specifically with employment, in 1946, did not even mention the Federal Reserve but  the President.  There was great concern that after the massive Keynesian stimulus of WWII remedied the crazy tightness of FDR working in coordination with the Federal Reserve, the new President Truman with his reputation of being a “Blue Dog” and fiscally tight, was charged by Congress to deal first and foremost with employment.  It was thought that returning soldiers and the military returning to a peace time footing would throw the economy into depression, once again.  Therefore it is in error to cite the 1946 act as having anything to do with the Federal Reserve “dual mandate”.  This is the popular view and is in error, and was  summed in a Washington Post letter to refute George Will taking similar lines to what I am doing here.  Since the writer is Ken McLean who was a staffer in the writing of the 1977 and 1978 amendments to the Federal Reserve Act, it is thought to have authority and set the record straight.  McLean writes:

“The 1977 legislation referred to by Mr. Will was the Federal Reserve Reform Act, which among other things called upon the Fed to conduct monetary policy so as to "promote effectively the goals of maximum employment, stable prices and moderate long term interest rates." These goals are substantially equivalent to the long-standing goals contained in the 1946 Full Employment Act. The goals of the 1977 act were further affirmed in the Humphrey-Hawkins Act the following year.”  (WP November 25 2010)

This is either at best in error, or worst disingenuous as nothing that transpired or said by Congress, even to date, supports his statement.  To cite the 1946 act is either an old man with a fogged mind or simply bunk.  The 1946 act has nothing to do with the Federal Reserve Act and the  the Federal Reserve amendment of 1977 citing of the 1946 act in 1978 clearly has employment as the effect that increased production would bring about, among other economic variables.  McLean also takes the wording of maximum employment out of context, not mentioning the preceding language.

The key and entire language is in Title 12 Chapter 3 Section 225 (a) which was changed with the 1977 amendment,  a change that was 64 years in the making, with the  addition of the term “maximum employment”:

The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”

It is important to note where employment appears in regards to or dependent on what.  The statutory mandate is to “increase production”.  “Maximum employment” is the intended  results of “increase production” and explains why Congress is instructing the Fed to increase production. To have the Fed to assist or allow administrations policy for the country to reach potential production is the entire mandate, and it is assumed that maximum employment will be the end results, which by production growth  the Fed "promotes" for the long run.

The following year Humphrey-Hawkins Act elaborated further on this intent and “finding of Congress”  and clearly shows the non policy making role of the Fed  by adding a reporting section 225 (b), which by listing what Congress wants reporting on shows the placement of employment in this intent:

(b) Congressional Report. The Board shall, concurrent with each semi-annual hearing required by this section, submit a written report to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Banking and Financial Services of the House of Representatives, containing a discussion of the conduct of monetary policy and economic developments and prospects for the future, taking into account past and prospective developments in employment, unemployment, production, ,investment, real income, productivity, exchange rates, international trade and payments, and prices.’

Clearly employment is only one of the several factors of “the long run potential to increase production”.
There are many variables, employment being only one of the variables.

Furthermore the 1978 Act has a preamble a “finding” of Congress which shows the limits and the expectations of how the Fed was to act in this system and with whom:

and by improved coordination among the President, the Congress, and the Board of Governors of the Federal Reserve System.

It is obvious that the mandate the Fed received from Congress was to implement policy that contained or prevented inflation in the context that would increase production.  The Fed was to then report on how the monetary policy impacted the variables that describe the whole spectrum of production.

There never was a dual mandate of “maximum employment" and inflation granted to the Fed by Congress.  It is clear “maximum employment” is the desired results but not the mandated objective.

The history of the Fed after the 1978 and a consideration of the “dual mandate” use since then, also shows that Congress has never granted the Fed the employment and inflation dual mandate.  Almost immediately after the 1978 Humphrey Hawkins Amendment, Volcker simply tossed onto the academic rubbish heap Miller’s use of the amendment – and Miller did not focus on employment but concentrated on economic growth via an easy Fed such that it would result in greater employment.  The results were the agony of stagflation, which in theory was never to occur, so the 1978 act suffered immediate discrediting and seemingly proof that the linkage of inflation and production was not understood.  So the entire academic basis for the 1978 was tossed out the window – and to many that is still its status. Volcker commented:

“… I don’t think that we have the choice in current circumstances — the old tradeoff analysis — of buying full employment with a little more inflation.
We found out that doesn’t work, and we are in an economic situation in which we can’t achieve either of those objectives immediately. We have to work toward both of them; we have to deal with inflation. And the Federal Reserve has particular responsibilities in that connection. “

From then until the mid 1990s, the Fed “dual mandate” was rarely mentioned as the Phillips Curve and the ability of the Fed to control the employment inflation tradeoff was a risible concept.  In fact employment was dropped from consideration and it was accepted in the sense Congress always had placed it, as a subset of production with production analysis framed in terms of realized and potential.  The rules appear where societal goals of full employment are not considered to be within the ability of the Fed to seek.  That is why all monetary policy “rules”  (ironically Yellen implicitly acknowledges this with her modified Taylor Rule, her “balanced rule” not having employment as an explaining factor) either have only inflation or inflation and some metric  qualifying production – usually an output gap value -   as the entire useful set of factors that the Fed can effect.  Since there is no academic literature, at least that I can find, that applies an employment variable into a “rule”, it shows that no one at the Fed thinks they can directly impact employment.  This is another indication that not only is “maximum employment” cited as the mandate an unconstitutional legal ruse, the use of employment in the dual mandate  is a communicative effort, or more correctly described as propaganda.  Bernanke admits as much, how the fed cannot impact employment but is in the domain of economic policy not monetary policy  in one of his last speech on November 19 2013:

“….the Federal Reserve could not adopt a numerical inflation target as its exclusive goal. Nor would it have been appropriate for the FOMC simply to provide a fixed objective for some measure of employment or unemployment, in parallel with an inflation objective. In contrast to inflation, which is determined by monetary policy in the longer run, the maximum level of employment that can be sustained over the longer run is determined primarily by nonmonetary factors, such as demographics, the mix of workforce skills, labor market institutions, and advances in technology. Moreover, as these factors evolve, the maximum employment level may change over time. Consequently, it is beyond the power of the central bank to set a longer-run target for employment that is immutable or independent of the underlying structure of the economy.”

This is amazing, to me as Bernanke is almost winking and rubbing his nose and admitting that the use of employment by the Fed is solely to fool the folks into having the expectations the Fed seeks – ergo “forward guidance”.

The problem now seems to be that some in the Board of Governors group, including Yellen have come  to believe that  the mandate is full emplpyment, one of a duo,  and the Fed can bring about a qualified full employment status.  Or she is a most audacious liar and is cynically leaning into the Bernanke “communicative” purpose of the ruse – no harm no foul all for a good cause – to simply expand and maintain the newly found power of the Federal Reserve delivered to them by the crisis.

The use of employment in the dual mandate also didn’t appear until mid 1990s, and when hawks attacked   Greenspan who bravely made a call on productivity that allowed him to stay in relative ease throughout the 1990s, producing the “Great Moderation” and providing the strong capital market setting that allowed for the rise in productivity in the first place, the dual mandate was thrown in their face to justify the Greenspan policies. It seems the Princeton colleague to Bernanke, Alan Blinder was the first to use this approach, defending Greenspan from the hawks when he wasnt trying to oust Greenspan and replace him with Alan Blinder:  

“As usual, let me defend the status quo. We have a dual objective in the Federal Reserve Act now. I think it works very well. I think the case that it is broken and needs fixing is very thin. … There is no existing evidence — and I can’t say this too strongly — that having such targets leads to a superior trade-off. None at all. It is not one of those cases in which the evidence is equivocal. There is nothing that can be cited “  FOMC Minutes Jan 31 1995  Blinder

Then, perhaps with Blinder exiled from the Fed and the dotcom bust, employment in the dual mandate disappears from academic and Fed lexicon until the 2008 solvency event.

And even then the Fed was slow to discover that their main purpose in life was to honor the “dual mandate”, not even mentioning employment and mandate in the same sentence until the September 2010 FOMC.  I find this very strange as it certainly does not sync with those who think “of course” the Fed’s powers rest upon the long established core empowerment of the dual mandate – it is law!

“Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the long run, with its mandate to promote maximum employment and price stability” September 2010 FOMC Statement"

But even as late as 2010 the Fed was yet to discover their constitutional bedrock of empowerment, the obvious long standing dual mandate of “maximum employment” and inflation.  But by September, as they started to get some heat over the startling swelling of the Fed’s  balance sheet via QE I and then the start of QE II, they had obviously switched the statutory mandate to support increased production with “maximum employment”.  By the November 2010 FOMC, finished form had been “discovered” and the shibboleth of dual mandate had been created with the Fed freely rewriting the Federal Reserve Act, despite the fact that they believed that the Fed could not directly affect employment, that employment was a nice results but since Miller no one at the Fed thought it had much to do, if anything, with monetary policy. Still the November 2010 Statement was the first statement of the dual mandate claim that has been in every statement since:

“Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate.” November 2010 FOMC Statement

The belief in a “natural rate”, a Fisher rate, is the keystone to FOMC monetary theory.  The level of what the natural rate is is the subject of great debate, but almost all policy makers and analysts in the Fed system believe in the Friedman-Phelps natural rate thesis that the natural rate cannot have any impact on the level of employment.   
So based on the record, a read of the relevant law and the amendments, the academic use of “dual mandate” both inside and outside the Fed since the 1978 amendment, the widespread belief in Freidman-Phelps, and how the “dual mandate” slipped into the FOMC Statement and when it did so (late as November 2010) – the Fed, in truth,  do not believe they have a Congressional mandated objective to reach “maximum employment” and the use of the concept of “dual mandate” is for “communicative” purposes or to justify the  greatly expanded power base.   

In short, the formal use of “dual mandate” with maximum or full employment as one of the main objectives of the Fed, is clearly unconstitutional and a “ruse”.   Since Miller every FOMC was loath to express their objective or mandate in terms of unemployment or employment as it was felt that it could not be changed via monetary policy and was not the mandated task assigned to the Fed by Congressional law.

All that radically – and  in a very risky unconstitutional way – changed on November 3, 2010.


Those who think the dual mandate is a given, always a keystone to Fed policy and clearly the assigned duty of the Fed by Congress simply have not read the history of the Fed, considered the law in even a casual manner, and are naive.

Wednesday, July 9, 2014

The "Dots Explained

Much has been made of the “dots”, the pretty smattering of the FOMC voting members depicting their Fed Fund expectations to 2016 and then for the “Long Run” thereafter.  The tabling of these expectations are potent as they show the FOMC voters true thoughts no matter the verbiage of the Minutes or the Statement prior.  A voting FOMC member can now dissent  anonymously without casting a dissenting vote, providing subtle and yet more powerful contrary views.  Finally, in the “Long Run” Fed Funds expectations,  the Keynesian steeped FOMC members – no matter if a classic Taylor like view or a New Keynesian  “forward guidance”  believer – all agree Fed Funds converge to NGDP.  So much can be expressed in the ‘Dots” without knocking heads against Chairman Yellen directly, or entering into a weary argument, once again, with the likes of President Kocherlakota or Secretary English.  The “true believers” are onto this form of sneaky dissension and have even started a move to ban the “Dots” forcing  dissenters into a publically noticed “no” vote.   But for now we still have the ‘Dots”. It is obvious the "1%" expectation FOMC voter does not believe in a single word of both the Minutes and the prior Statement. 

The “Dots” as almost all wrestle with to date are here:


Very pretty  indeed, and then most cut and paste several of these FOMC charts on top of each other, holding them up to a bright light, to get an idea how they change.

A better way to consider the “Dots” is via the famous statistician John Tukey's “box plot”, with each column above represented by a “box and whisker”.  The line bisecting the box (sometimes it doesn't bisect if the expectations are extremely skewed) is the median value, the top and bottom of the box is the 75th and 25th quartile boundary and the dotted line goes out to the 100%  but for extreme trimmed outliers which are shown well above or below the box.  Those are our “secret dissenters”.  A  set of boxplots are plotted for the Dec 2013, Mar 2014 and the June 2014 FOMC package attached to the minutes.  And here it is:


A lot easier to track the “secret dissenters” and the range of the calls and the median of those calls which most see as the “Fed Funds “ path as if it is written on a tablet from the mountain.  There is obviously much turmoil at the FOMC hiding behind the tepid minutes written by the “true believer” Secretary Bill English to suit the Chair’s supposedly all-encompassing view.  To my read it looks like the FOMC consensus is now a facade of sorts and there are some serious mischief makers armed with their large credible staffers back at the regional FRB office tower.  Then there are some technical issues of note – first extreme disconnect for the majority of the FOMC who feel a very large 1% rise in the Fed Funds will be required – hopefully not all on the last day of 2015 as the Chairman suggests. Then the majority believe another wrenching very large 1.5% add on to Fed Funds are required in 2016.  Given the size of these expectations of the FOMC majority, and taking into account past FOMC tightening, most of this 2.5% raise will happen swiftly, likely within 6 months or even shorter.  The next interesting point is that the Long Run consensus is very tight around 3 ¾%, but that has dropped from 4% recently.  This shows the entire FOMC is a believer in the “New Normal” of Bill Gross, just not as much a drop that he anticipates from the “Normal” long run NGDP.  And a significant change in this belief to even a more pessimistic view occurred in the three months between March 2014 and June 2014.  Why?  Yet at the same time the expectations for growth or return to trend growth accelerated from the March FOMC meeting to the June, as shown by increases by the majority of FOMC voting members for 2015 and 2016.   No wonder the  curve flattened so much in 1st Q to 2nd Q 2014.  The dispersion  increased in the June meeting for both 2015 and 2016, suggesting greatly increased volatility is implicitly expected by the FOMC voting members.  VIX shorts  should take note.

This shows the basis point vol as reflected in the dispersion of the FOMC voters:


The move from 0.78 yield vol to 1.26 for 2016 Fed Fund call in the June FOMC will likely result in about a 2% 2 year vol at some point which will be wrenching and perhaps transmit to a 25% VIX and 2 year SP vol swap.


The voting members of the FOMC “Dots” should be taken in very carefully with a few caveats. The first, though with exceptional knowledge, experience and insight, is that these are human expectations and the wide differences  between the members shows clearly the lack of consensus, despite the unanimous vote.  And those expectations, already diverse,  always change with a “whoosh”.  The second point, on that “whoosh”, is well described by Mike Tyson; “everyone has a plan until they are punched in the face”.  



Or to paraphrase; “Expectations from the FOMC are reliable until they change, suddenly.” 

The “Dots” should also be seen as the tip of an iceberg where each “dot” is backed by a army of researchers and the credentialed, who are without a doubt the best in the world at monetary policy and monetary economics.  Each “dot” represents thousands of hours of research and debate, sometimes intense debate to the point careers are ruined, or then rescued as Kehoe was at the Minneapolis FRB.  So each “dot” is the end results of the very complex political demands of each voter to their home base, and is a melding of their staffers views and their own.  At the very least the voter is required to spend hours upon hours consulting and interacting with the staffers even if the voter's personal view is different.  That is unless you are President Kocherlakota in which case you simply fire the bastards. 

Thursday, April 24, 2014

My take on Piketty - 4/21/2014 BI Interview by Rob Wile

Editor's note: Below is a Q&A with Mac Robertson, an independent portfolio manager and macro strategist who recently Tweeted a critique of Thomas Piketty's new book, "Capitalism in the 21st Century." This Q&A went out to subscribers of our "10 Things You Need To Know Before The Opening Bell" newsletter on Monday morning. Sign up here to get the newsletter and more of these interviews in your inbox every day.

BUSINESS INSIDER: Your main point of criticism was Piketty's data set. What was wrong with it?

MR: National account income data is, by definition, made up of many subaccounts which have various weights waxing and waning. So as particular weights suddenly surge while others decline, the aggregate summation is not reflective of these dynamics. This is especially problematic with household income, both annual income or accumulating net worth. In particular income is a "fat tail" with extreme skew — a Pareto distribution — or is actually a bimodal or multi modal distribution.
This means policy acting upon one part of the distribution will often have little impact on another part. Policy changes for, say, the top decile will have no impact on the lower quartiles.
Or, if top decile, which might actually be a separate distribution, is reduced by tax, the lower quartiles may drop. The connectivity implicit when one discusses inequality does not really exist.
So, to use the aggregate tells you nothing and provides no prescription.

BI: You go on to say he erred in trying to compare nations' outcomes. What did you mean? 

MR: Nation states, as far as macro economics, are really a fiction. The real aggregations are among hegemonic powers which set economic policy for their group or are a constantly morphing alliances of regions that transcend national borders.
And currently there is only one true hegemon which is the USA, but regional hegemons have defining capability if the USA has benign indifference in a certain region. For example Brazil has much clout in South America now. This is always a fact of life now and the usefulness of examining many nations hasn't really been useful since Metternich.
In fact many of the wars in the last 150 years have been caused by one power thinking that there was a balance of power and one could, by strategy, dominate. Germany and Japan made that mistake in the 1940s and China may be doing the same now. What this means is there is little relevancy or usefulness in comparing Italy in the 20th century to the USA, for example.
Some economic histories are useful as they produce a laboratory of unique events, like Weimar inflation or Sweden's solvency crisis of 1990s, but then only in terms or organizing ex ante thesis. The empirical record is useless.

BI: Piketty described a "fantasy world." What are you referring to?

MR: The fantasy world is the same as Rogoff and Reinhart offer: that there is a scientific theorem that can be developed from this analysis of many national accounts. But that assumes there is equivalency between nations and consistency of the subsector input that makes the national accounts. The above two points do a good job in briefly explaining why that is a fantasy.

BI: You said you preferred Henry George's analysis of income distributions. Who was he and what did he say?

MR: Henry George was akin to Keynes and also Locke, that sound economic policy cannot leverage "luck" in being given rare resources from an accident of birth or through lucky stratagems. George called this resource "land," later Keynes would call this capital and land. But the common denominator is one class of folks are "rentiers" who only seek a low risk return on their assets — usually inherited. That income is "rent." Again in George's time that was, for the most part, real rent on land leases.
George proposed that all funding of the public purse would be a tax on rent. Keynes went further and proposed that not only would rentiers be disproportionately taxed, but their " euthanasia" should be sought. George would propose that inequality between rentiers' capital accumulation and income of consumers and entrepreneurs is the only inequality to seek reducing or eliminating. Keynes agrees, so do I.
To not differentiate this income type, speaking to the first point above, invites disaster. Why would you tax a Bill Gates midstride? It would be very destructive. Yet Bill Gates' income explains much of the income inequality. But would taxing late-stage Buffett be good? Perhaps. Certainly to tax third-generation rentiers and forcing the money back into the hands of future Bill Gateses, perhaps by funding universal education to promote future Bill Gateses, is good.

BI: Is there anything Piketty got right?

MR: No, there is very little Piketty got right. And his work lacks integrity with solipsism and "pop" so that I suspect he is a careerist. All the above he would know well.


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Friday, March 28, 2014

Ford falls into the Apple Trap





Remember her?  She is singular, alone but likes it that way, her own person, cool, chic - and in her hand she shows you how you too can join in her chic "aloneness" - just go buy the Apple iPod, and you too can become chic and at the top of the pyramid.  Making a stand, not worried in the slightest with your aloneness as it certainly isn't loneliness as you have status! And note she has her fist clenched in courageous defiance over - well that doesnt matter.  There, take that, I am chic, powerful, dance, and very very unique and elite as I am not one of the masses.  Why isn't she one of the masses?  Because she is alone by choice, cut off by her headphones and dancing.

One has an idea she is a revolutionary, striving for  - well.something important.  Maybe she is in the camp of Occupy Wall St, or doing important 2% stuff, or upset about - something unique singular, alone.  Something cool.

So, you want to be as cool as this woman, go buy an iPad, actually any Apple product works, and you will be one of the few.  It doesn't matter that every single one of your friends, colleagues, teachers, peers, parents, kids, and..... have an iPod, do the same dance - you are still unique, and your iPod and Apple product set you apart and give you a tribal identity.

This is where Steve Jobs genius lay, not in the product tech side of life - his stuff is over wrought but sexy and cool looking - but in marketing and the ability to convince the vast majority who ended buying Apple products, they are really a small elite tribe.  Absolutely stone cold brilliant.

He jumped onto the channel that Tom Wolfe, to the best of my knowledge, first described in Radical Chic & Mau-Mauing the Flak Catchers , a piercing savaging of the ego and pomposity of the elite as they use "causes" to secure their uniqueness and class. Radical chic was  first used as a way to identify the upper class, the caring brilliant upper class, who used "causes" the way their crew use to use mink coats decades prior.  Wrap yourself in them.

Volkswagen then picked this up as a way to get an advertising message across, and off we went.

Bu the grand champion of "cause" advertising was Steve Jobs, who wasn't happy with the true individual radical early Apple users 5% market share, he wanted Apple to stay radical, stay with the "cause", but get to massive market share.  He didn't really start to do this in a big way until he borrowed a page from McLuhan and figured out the medium becomes the message and vice versa and - with genius - all that early true high tech capabilities wrapped themselves up with music and a way to secure trademarks for the music.  Brilliant.

Didn't matter the product sorta sucked that the headphones leaked enough to drive anyone within 20 feet nuts, as if you held a vintage "boombox" on your shoulder, you were empowered, you were dancing alone.  You were chic, you joined the tribe - far out.

And the joke being of course  that your participation with Apple made for what would become one of the most mainstream behemoths, right up there with Exxon.  Far out.

Franzen perhaps nailed it best in Freedom, the hypocrisy at the core of this chic hipster tribal marketing:

“I think the iPod is the true face of Republican politics, and I’m in favor of the music industry … standing up proud and saying it out loud: We in the Chiclet-manufacturing business are not about social justice, …we’re not about a coherent set of national ideals, we’re not about wisdom. We’re about choosing what WE want to listen to and ignoring everything else…. We’re about giving ourselves a mindless feel-good treat every five minutes. …We’re about persuading ten-year-old children to spend twenty-five dollars on a cool little silicone iPod case that costs a licensed Apple Computer subsidiary thirty-nine cents to manufacture.”

Global warming figured this out and off they went as well to where you had to believe in global  warming to dance comfortably alone with the woman above.  You had to believe.  That is why global warming is the first "science" that is completely dependent on mainstream marketing and advertising - polar bears seemingly stranded 1000 miles offshore and and and....  You got to get your iPod, you got to get your iPad, you got to believe in global warming so as you could dance with the woman all in black. or you became that poor dullard in the early Apple ads stupidly self destructive and exiling himself using IBM.  You went out and slaughtered baby polar bears, you farted methane enough to make yourself an EPA site and you would never ever get the woman in black above.


So- you really really want to be the Apple guy, so go buy your iPhone and your iPad and of course you already got your iPod - heck you might go get a Mac now.  It makes you radical chic, and you then belong.

Brilliant brilliant marketing.

Now global warming wrapped itself in this moving from fuddy duddy science to the slickest of the slick invitation to the tribe stuff.  The big shift of course was Oscar winning "Inconvenient Truth", made by one of the slickest of the slick movie directors, or really advertising director, Davis Guggenheim (always wondered if he was named "Davis" at birth) married to the glorious Elizabeth Shue.


Now full disclosure, Davis - despite being the Apple guy that he is and very very cool - gutted a hedge fund I was with with a movie who I have through CSR forgotten the name of but has something to do with a young woman - no doubt the Apple woman dancing above later in life - finding herself by playing elite soccer.  It was perhaps the worst film made in the last century, destroyed the hedge fund pretty well and the only time I ever saw the film later was when my kids gleefully pointed out to me while traveling it was offered in the hotel in-room film menu for $2.00 while all the other films were offered for $14.00.  Oh well.  Our problem, we tried to be a cool hedge fund and buy our way to dance alone with the Apple woman and who would be better than the grand wizard of global warming propaganda - Davis.

Global warming crew if they have no science they can at the very least take Chiat Day out of business if they wished, and it is now "c-l-i-m-a-t-e  c-h-a-n-g-e" or as I like to see it global warming with  absolute value signs around it - |global warming| - so they got you coming or going now, cold or hot. But it is once again Apple marketing, to be cool you got to believe in climate change, or |global warming|.

Now after Davis taught them, if you propose to the unwashed  that with this



you can get the Apple woman, off they go and we have physicist conducting symphony orchestras on behalf of climate change, or |global warming|.

Now I get to the point.

GM released the "CaddyMan ad which at first was so obnoxiously elite Americana it was a delight and refreshingly honest.  Yes in the USA people deep down dont really want the Apple woman, they dont need a tribe, they dont need a meaning, they dont need to own a iPod but for ease of listening to their old Belafonte stuff or their Tom Petty and as soon as they got shed of this Apple crap and into Android, they are now on the far easier and less messy Google Play.  All they want is ridiculous comfort, fun, status, power, perfect kids who adore them  and of course these guys drive a Caddy, an electirc Caddy at that but that is sorta a joke from their point of view and they will drive a electric hybrid because it is even more expensive and the 400 Vortex engine is still in there.  And in the end we know the sordid truth - they do get the Apple woman.



But isnt this guy the one you hate, a 2%?  Hell a .002%.  He dont have a iPod, right?  He dont do Mac, no how?  But the ad company Rogue that did the ad are coming in like a lazer, they are calling your bluff, they are speaking real truth, and in the sanctity of your own home where no one will see you, you are offered a deal to identify yourself with Caddyman, and stop using all this cheap Apple shit and living in cheap terrible spots claiming it is part of your identity and just go unabashedly main stream American.  Come on, fess up - you want that Caddy, you want that pool, you do work like hell - you sneer at those Frenchies who take all of August off - off! - and your kids are perfect co-conspirators, giving you high fives.  You hate Apple guy, that sneering snot nosed twerp who all day long tortures you at the office.  And you know the truth who gets Apple woman in the end.  Caddyman. The Caddy ad was perhaps a wee bit overplayed and overstayed its welcome, but it is a brilliant counter to the "emperor has no clothes,  but you are member of the tribe Apple" mmarketing.   Now I wonder if this indicates the back lash is coming, tje end of the lemming Apple marketing ability is over, that the radical chic is once more seen through and has become a joke.

But Ford doesnt thinks so.

So Ford completely screwed up and talked into it by their Davis crony Ford's internal folks 'Team Detroit" who lock step parodied  the GM Rogue ad:


The arrogance of Ford 'Team Detroit" have neatly skewered themselves upon the Rogue agency sword, falling into the trap in ways that the Rogue GM guys could not have dreamed of in their wildest imagination.  They take on all the Apple marketing sanctimonious ideals, not heeding the great secret of such marketing - don't go "full retard", don't go full global warming Occupy Wall Street, anti 2% - or don't bite the hand that feeds you.

Let us count the ways Ford screwed up - the Apple Woman now becomes  "Ms. Eat Your Peas" lecturing us on what dopes we are not collecting our merde, not saving our food scraps for something or other and not dressing really really - well she was just out hanging in manure fields or something - and I actual get a bit of a flash back to Angela Davis and.....  And that car??  When Apple made me buy something to join the tribe it was at least cool looking, did the job, and was even fun.  But that car?  man that is martyrdom for the cause and I don't want anything to do with that.  This Apple woman frankly scares me a bit and likely will sue my ass off for something. I don't want this tribe, no sirree - I want tribes that get me with the other Apple woman who's radical attitude is sexy likely empty and fun - this Ford woman aint fun and she likely can not dance.  Running around collecting manure.  

And the car:

  
No No No No   count me out, and this Ford ad is a public service announcement to warn me away from what this trip is all about.  "Team Detroit" are illiterate sods who never read Franzen and didn't figure out the Apple joke and Chiclets, likely don't know who Jonathan Swift is and don't get satire and a wink, and all wrapped up in their smug hipster stuff, they simply went out and self immolated.  I bet they last another 3 weeks at Ford - at least the tough pragmatic Ford guys I met when I was trying to get into the pension - my version of the Apple dancing woman back then.

Ok, I will talk about how obnoxious it all is - how I never liked that guy anyway in Band of Brothers, how crass and so so awful.  And I will say this as I go tip tapping on my iPad - but I will, when no one is watching sneak off and take a look at this:


Sorry Manure Lady - you aint the Apple woman anyway, you cant dance.

I am the Caddyman. I hate Frenchies taking all of August off.

And if I can ever get a loan, I am buying that Caddy and the electric will allow me to keep club tribal membership and still get all the good stuff.

N'est pas?

Wednesday, March 26, 2014

The way to eliminate Putin - it has a name no one dares use now.......

The current crisis in Crimea  if "played" right could be the final straw and do what West have been trying to do for centuries, starting with Napoleon, and bring Russia to heel and then let them become a partner with  Western modernity.  Nowadays no one requires Russian servitude, all the West requires is Russia adopt rule of law, universal rights, and democracy.  That is "all".  This is more of a security concern than idealism. And if one has even a sorta passing regard for universal rights, then it is what Russians want as well.

Now, Putin and Russia are one and the same.  Russia is suffering the same ole same ole Eastern disease of insisting on a despotic near religious, certainly larger than life, leader.  This is the ancient Eastern approach of power, and seems to be a disease of the East.  Note how Diocletian was a republican in a sense but then he moved to Split, founded the Eastern Roman Empire and become a God like figure, in fact he did become a God.   This desire of a leader in the East to become the "Great Man" is obviously firmly back in place now in Russia and in the past had eased West at times even getting as far as Germany with Hitler before easing back to now just the Russian borders. 

 it is Eastern as shown by China and down to Singapore and off and on in Korea and Japan.  The Great Leader.  Father.

The setting in UKR is very interesting and to some degree, but not at all as much, the same in Estonia, Latvia, Poland and Romania.   The culture has one pillar based on Death and the understanding how much death man can inflict on man.  East Germany also understands this.  But then as you go further West the culture no longer has Death as a core tenet but one of progress and redemption and individual achievement. In the West, myth or not, it is the individual that matters and in the East it is the state or collective almost always personified in the Great Leader-God.

In this land of death - what Tim Snyder calls "Bloodlands"  - and the  title of his book - there is a constant sense of the impermanence, or potential of  swift end of even best plans and aspiration.  I sense Poland has pulled out of this to some degree and the Baltics following.  Europe has been relieved of the main cause of this culture which has been Germany - "keep Russia out, Germany down, and Americans in" - but as we have discussed there have been some problems of late  as Germany is starting to "get up", but at least to date it is not hard power but soft power and finance that is raising them up.  But the culture of death has left Europe.  

In Eastern Europe it is still there because the other major cause of this culture, Russia, is still empowered though greatly curtailed in terms of the global impact since Stalin.  However this Crimea emergency shows they still have the ability, though  maybe not to invade the West,  to keep pumping the death culture into parts of Eastern Europe.

This death culture of Russia must end.  

And in many ways it is a very literal "death culture", Russia is being destroyed from within:




And to my view the only way to end it is to draw permanent borders around Russia first, then contain - a final continuation of the Kennan plan - and  then the Russian people will shed their deadly fatalism and seek democracy.  I think the only reason Russians seek and support such neo-satanic folks like Putin is they are imbued with fatalism that life can change so horribly and drastically one needs the "Strong Man".

So to secure borders we must respect the integrity of Russia.  Latvia and Estonia showed that Russia will not go down the Sudetenland path where Russia colonists were pushed into a country to break up its ethnic domain - sort of a reverse ethnic cleansing - as though they feinted hard at the Baltics and even conducted cyber warfare, they were backed down from Estonia and Latvia, mainly due to those countries' NATO membership.  So Putin will not go into East UKR or that area just north of the Dnieper delta even though there are a majority of Russians as long as the "true" Russian borders are sanctified.  

That means the absolutely unequivocal status of Crimea being Russian is acknowledged.  

Putin blew it by taking Crimea, for if he left it there but under protest with UKR,  he had a powerful way to keep UKR completely NATO free.  But he did not, and the writing is on the wall based on Estonia and Latvia experience that UKR, once shed of Crimea "trap", must join and will join NATO.

Then with the borders agreed to by Russia, immediately NATO forces move into UKR.

Then we can start to work on Russia, using all the myriad ways to now pierce the Russian border. Ideas cannot be embargoed.  And, assuming to bring a Romantic Fukuyama  'end of history" dialectic to Russia is good (I think so) -  the way is clear for the  bringing of Russia once and for all into the West, something Peter the Great started but has constantly been attacked by recidivists and been constantly pushed back to the East, then West - and so on until it is now "Eastern".

We first guarantee Russia borders by agreeing to stringent security deals, even to the point the USA will assist Russia if their borders are in the slightest challenged or if they suffer a cataclysmic event like a terrorist event.  Then we move in for the "kill".  

We open USA and perhaps EU markets to Russia on a asymmetrical free trade basis, at first seemingly at great disadvantage to the West and huge advantage to Russia.  They will pounce on this, likely with glee. 

We basically "buy off" the oligarchs.  We offer great ease and even financing for Russian students to the US colleges, we allow passage for all the Russian navy, we offer near instant Green Cards and visas for any Russian that can show means.  We absorb and absorb all Russian excess capacity and then some as we pay top dollar for goods such that they start to hold back those good from Russians themselves.  We give give give to Russia.  

We force Russians to examine inwards, to look to themselves and start to reread  Chekhov and discourage the fatalism of Dostoevsky.  We open our borders to all artists and athletes.  And keep them looking forcing Russia via largess to look inwards.  To face the bizarre mortality rates, the gutting of their lives by drugs and vodka, the crass brutal kleptocracy.   We force them to look inwards by giving them a secure border and then largesse upon largesse upon largesse.  We give give give.  We show there is another pathway, a way of objective individual truth versus social structure "science" or fascist national glory, so as  to find meaning in life.  

We break the cynicism and worship of death.   

Putin and Russia have a secret, that they are desperate to contain.  That secret is that Russia is a very weak and ineffective country in terms of projection of power and ability to execute organized plans. Sochi was a huge failure and so obviously shrill with empty stands and a setting that looks like it will crumble by July.  And it cost 1/2 the Russian annual military budget.  I imagine Russia is broke now.  It is my belief that Ukraine could destroy Russia on the battlefield, not just because Russia military is deprived of its traditional battle NCOs and senior leaders, who were Ukrainians schooled in Afghanistan - but because their equipment is decrepit, military morale is non existent.  when you have moved the mortality rate of your average soldier down 10 years while you were in power - you will find they have no morale, no reason to fight.

I think in most current history analysis there is always a huge error going down, a cynicism, that the local barber or shopkeeper or worker is just too damn stupid to know what is good for themselves and their family.  I see this as elitist and very similar in vein to colonialism.

Now if you look at all the above,  rock solid security around Russia combined with largess to encourage change and evolution to a Fukuyama dialectic, which Obama is sorta stating now and all liberal pundits claiming in one way or another for one part of this approach  or another - you really have:

Bush Doctrine

Tuesday, March 11, 2014

Addendum to quality of labor - labor supply is very tight, inflation here or arriving soon, Fed will end ZIRP

Follows is a very soild "proof" of the current labor market tightness using qualified labor metrics.

The main labor metrics,  U3 and U6 series from the household survey, are being ripped through by massive revisions, demographic changes, and  huge numbers jumping from out of the labor force then back into the labor force.  Since these cross rips are hitting both the denominator (labor force) and numerator (unemployed), U3 is a good dynamic indicator of  relative changes of the supply of  labor,  but is likely not an accurate outright number at this point.  U3 suggests there is still slackness in the labor supply which does not exist.  The opposite condition exists - labor is tight and has started to create inflation.

Not going to get into  the debate on LFPR or EP ratios, and in anycase those are not monetary economic issues but social policy issues for Congress or the administration to figure out.  As far as FOMC policy, neither the employed to population ratio nor the labor force participation rate provide any way to apply policy tools. There is nothing the FOMC can gain traction upon or anything that provides the FOMC with a handle to apply change.  Yet that doesn't stop most FOMC members babbling on about qualitative social questions.  Such is the 'Great Fallacy" of forward guidance.

The Fed will exit the qualitative debate and return to the science of monetary economics, or as close as they can,  to a rules based or axiomatic system of analysis with measured responses such that a regulated controlled application of policy tools occurs.  The biggest problem with forward guidance is it throws the Fed into a long term commitment and deliberate blindness which if it results in policy error will be unforgivable.   

The U3 rate is clearly out of whack as shown  by the Beveridge Curve:

But it is becoming  "rational" with U3 returning to the norm versus JOLTS job openings rate. This is shown by the very large improvement in U3, moving to the left and back to the usual relationship to demand (above arrow). Still,  the supply of labor as per U3 is a good 1% higher than the demand for labor would indicate.  There are large rips and unique anomalies hitting both the numerator and denominator of U3.  But it will be noted in hindsight that the move of U3 "correcting" itself and re assuming the usual schedule to jobs openings started last July 2013 with  the movement towards the labor demand over the last 5 months suggesting that the labor market is dramatically tightening up.

Confidence in the prediction, or current analysis, of labor tightness given the above, can be provided by observing the most current labor metric - weekly initial claims without the seasonal adjustment. This is why the CES folks at BLS use initial claims to revise the baseline for the employment indices. Weekly initial claims non-seasonally adjusted data is mapped out over a surface of the 2006 data:


Above shows the most recent data for 3/22/2014, "Week 11" in initial claims NSA.

A closeup of "Week 11" NSA initial claims for the last 32 years shows the very strong strength :



During  the July 2013 auto refit, initial claims completely returned to the norm and indicate a full recovery had occurred. Again, the same time that the U3 Beveridge Curve started to correct.  This then  can be used to qualify the U3 Beveridge Curve above, to gain confidence noting the closing back to the usual schedule at the same time  initial claims indicate full recovery, returning to the 2006 level.   Given  the  large movement of U3  parallel to the X axis towards the JOLTS job openings data for the last 5 months,  it is now not aggressive to describe that the  labor market is now very tight.  (However there is still noise in the initial claims as the impact of the shutdown and the last 7 weeks of tail-event weather shows.)

Another view of this is to view a contour mapping of NSA initial claims since 2002, showing the summer refit and how current status equal or better than 2006 experience:





Initial claims data is not impacted by the LFPR dropping, for the obvious that to get the insurance  you have to stay in the labor force, and then insurance payments  cease as one returns to work. The labor force has increased since 2006  despite the LFPR, so a better metric is the insured workers unemployment rate, or IURSA (FRED), than the levels.  This IURSA is by definition a  qualified pool of labor which is and has proven to be employable and to collect their unemployment insurance must remain in the labor force.  IURSA  will not be changed by the emergency extensions Congress granted, other than  to withdrew from the LFPR.  It should be noted that this is not an argument for public or fiscal policy, or that U6 and then the declining LFPR is acceptable - it is just that LFPR has no bearing in this discussion of the labor inputs for FOMC policy.

A steady "normal" relationship between IURSA and JOLTS job opening rate emerges, above the data noise of the U3 Beveridge Curve above,  that shows that  in terms of qualified labor the Beveridge Curve relationship stayed intact throughout the downturn and into the recovery, and shows that in this populace nothing much changed to the labor demand supply schedule:

We can throw CPI onto the above IURSA Beveridge Curve and then the nature/status of labor becomes apparent.  Inflation starts when labor supply tightens. Going forward, given any growth, "new normal" or "old normal",  very little qualified labor is left and currently (below) we have obviously moved past NAIRU and a Phillips Curve normal relationship still holds sway.

Inflation is now upon us, started, as usual, by labor market tightness:



We have  passed the point that well over 2% inflation is now present or will be shortly and then we will jump to 3% plus, given past history.  If the schedule of labor for that part of the pool that is inelastic has been maintained,  and everything above says it has, the Fed will have no choice but to tighten significantly and swiftly ending ZIRP and  moving  quickly to a 2% Fed Funds.

A better showing of  current labor tightness can be found when wage growth is substituted for  the above CPI.  Sticky pricing  occurs as employers adjust not by reducing wages, of course, but by layoffs.  That is why the regression on wages is flatter and never goes negative compared to CPI.  This also means that when wage inflation commences the Fed has to have a powerful response,  for being sticky once inflation starts it is very difficult to turn back down: 


The lower boundary of the schedule of wage inflation versus job openings is now being approached and general wage inflation will start.  No other conclusion can be had, once  using the "right" Beveridge Curve, than that a general inflation is about to commence if is not already present.

The Fed will have to be very bold indeed to insist on Odyssean Policy and stick to forward guidance of ZIRP  when the most stickiest inflation  moves towards 3%,  led by wage inflation.

The labor market is very tight now and there is little in the way of qualified labor left to induce to work but via a significant raise in wages.

It is very unlikely ZIRP lasts into the 3rd quarter of 2014.