Source This morning we were pleased to welcome Janet Yellen, President of the Federal Reserve Bank of San Francisco, to our UCSD Economics Roundtable. She focused on three main challenges: the housing slump, financial market turmoil, and commodity prices, which she likened to the three witches from Macbeth. Her complete speech is available from the FRB SFO Here are some excerpts. Janet Yellen (photo courtesy of FRB SFO). Housing. Unfortunately, it appears to me that there are at least three reasons for thinking that housing prices have further to fall. First, the ratio of house prices to rents-- a kind of price-dividend ratio for housing-- still remains quite high by historical standards.... Second, inventories of unsold homes remain at elevated levels.... Third, the futures market for house prices predicts further declines in a number of metropolitan areas this year.... Financial markets. ...

This is my first comment since Thursday given travel and lengthy meetings. Friday’s rally action had me stumped I’ll admit since it didn’t seem based on anything substantial. All it served to do was to keep us primarily on the sidelines.

Today we got a hot PPI at 1.4% which was dismissed early as the Kool Aid drinker’s focused on the “core rate” ex-food and energy up a “mild” .2%. But, how much more of these silly core rate numbers investors can swallow is beyond any thoughtful consideration. Anyway later in the day reality hit home as Goldman Sachs issued a downbeat assessment on financials ex-themselves naturally.

Volume was on the light side while breadth was as negative as you might expect.

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