LAID AN EGG

Which is what Janet did in her testimony before the House this morning.  Of course she had very little to say so she stuck to the script outlined here yesterday which seemed to please no one and frustrate a few.  Having seen how poorly this went, she may revise her approach tomorrow before the Senate who will probably be out for bear in some cases which is really too bad inasmuch the current situation is certainly not all her fault.  So I'm going to reserve overall comment until she finishes up tomorrow except for one point which took up a good deal of time in her testimony.

She received a number of questions as to whether the Fed would consider negative interest rate if the economic picture did not improve and as to whether the Fed had the legal authority to institute the same.  She didn't say yes but she didn't say no either which is indicative as to how bad things really are when a really bright lady like her could consider something so stupid.  She also stated she wasn't sure that there was legal authority for such a move but that it had been explored and continues to be explored.  That is a really bad sign because when anyone in D.C. starts looking for legal cover it means things are getting serious.  If this begins to sink in, we could be in for a really bad time given the manner in which I am sure the markets will react.

Speaking of reaction, after floating round for a bit, equities sold off hard at the end of the session.  Of greater interest was the fact that there was a $23 billion auction of a new ten year note that went off easily at a yield of 1.73% which must have seen like a gift to the entire world, hence bids from non-U.S. sources were heavily in the majority or so I am told.  So there we are 1.73% on-the-run at issue and by the end of the day the damn thing was yielding 1.67%!  I think it sunk in:  if she thinks the kind of conversations had up on the hill today are going steepen this curve she had best think again.  People are not interested in yield; they are interested in preservation and that ain't good.  Let's see how she does tomorrow.