The Distillery: Yellen's inheritance

Jotters assess incoming Fed chief Janet Yellen and wonder how she will wean the market off its QE addiction.

The name of the next chair of the Federal Reserve is now known and the commentariat has wasted no time in introducing us to Janet Yellen, a dove and close confidante of current chief Ben Bernanke.

The reign of Bernanke has been one of the most challenging of all time, but with the experimental quantitative easing program still running near top speed and interest rates hovering around zero, there will still be plenty of problems for his successor to worry about. So just what will the impact of Yellen be on QE and, crucially, how will her appointment impact Australia?

Change at the top of Newcrest also piques the interest of business scribes, with most viewing it as a welcome refreshment in light of the recent battering to the company’s reputation.

The most significant news for the economy, however, is the unveiling of the new Fed chief. The Herald Sun’s Terry McCrann enlightens his audience about the meaning for Australia – could Yellen’s appointment drag our currency back to parity?

It’s a great risk, according to McCrann, who sees the dovish Bernanke keen to leave QE unchanged until his departure in January and the more dovish Yellen happy to retain current settings while she finds her feet.

“If all this adds up to taper postponed to `whenever,' we could see the Aussie head back to parity… The RBA would have to contemplate whether the mix is sufficiently positive for the economy that it overrides the negative impact of a dollar at or near parity. But if not, if unemployment heads back over 6 per cent, it would grit its collective board teeth and cut its official rate. It doesn't want to cut further… But it will if it has to.”

The known economic viewpoints of Yellen did have investors cheering yesterday, but that isn’t necessarily a good thing, The Australian Financial Review’s John Kehoe contends. Introducing policies to counter the Great Recession was tough, he adds, escaping them will be a lot harder.

“The sharemarket has gained enormously from the Fed’s bond-buying program, even though the benefits for the real economy are less evident. So equity traders should not be the barometer we should use to determine whether Yellen’s appointment is a good one…

Stimulating to avert an economic depression was relatively easy, compared to the path that lies ahead of weaning markets off the drug.”

Fairfax’s Malcolm Maiden continues along a similar vein, calling for clarity from the new Fed chief to assist the market in overcoming its QE addiction.

“Bernanke and other Fed officials have consistently stressed that the taper depends on the economy's ability to handle it – but the Fed allowed the markets to believe it would begin the process at its mid-September meeting, and then did nothing… If the taper timetable is still up in the air in January when Yellen takes over, investors will be looking for her to quickly end the uncertainty.”

Moving back home, the chair and chief executive of troubled gold miner Newcrest have stepped aside, leaving The Australian’s Barry Fitzgerald to assess whether the moves were reactionary or always in the works. We may never know, but at least investors have been appeased, for now.

“Like all these things, the truth of what was behind yesterday's announcement on an "orderly succession process" lies somewhere in the middle. What is more important now is that finally, and thankfully, the country's biggest gold producer, by a country mile, has defused its critics – even if it argues it was a case of business as usual, rather than a response to their demands.”

Fairfax’s Malcolm Maiden also tackles the Newcrest moves, arguing “there have been enough problems at Newcrest to justify the changes at the top that the gold miner has announced.” This is a point that the AFR’s Matthew Stevens picks up and runs with, suggesting major backers of the company have had more on their mind than just the corporate damage caused by claims of inadequate disclosure; specifically the $10 billion takeover of Lihir Gold.

“While the disclosure issues are received as a potential stain on Newcrest’s corporate reputation, there is no question that the likes of BlackRock and First Eagle had matters more material in mind in pursuing their agenda for change. It is a miserable fact that not once since it was acquired has Lihir managed to hit the production and financial targets set for it by Newcrest management. The problems have been myriad, but collectively they inform of years of underinvestment while the mine was under the independent ownership of Lihir Gold.”

Meanwhile, the latest IMF economic update has been released, encouraging Treasurer Joe Hockey to criticise the state of the economy he has inherited. His comments, however, show that he has been in opposition too long, according to Fairfax’s Michael Pascoe, and perhaps didn’t read Treasury’s most recent forecasts closely enough.

If Hockey is still on his L-plates, as Pascoe suggests, then he certainly has the opportunity to gain a “much fuller appreciation of the challenges of his job” during his trip to Washington, according to The Australian’s David Uren.

Hockey’s assistant treasurer Arthur Sinodinos, on the other hand, has hit the ground running, with plans for swift reform to the corporate governance of super funds. The AFR’s Chanticleer columnist Tony Boyd outlines the latest developments and ponders just how quickly progress can be made.

Finally, the AFR’s David Bassanese assesses the recent lift in confidence in the Australian economy and proffers that the worst may already be behind us.

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