Larry Summers Was a Casualty of Syria

The big news over the weekend was Larry Summers withdrawing his name from consideration for Fed Chairman.  Summers withdrew after Democratic Senator Jon Testor from Montana signaled Friday he would not vote for Summers, making it virtually impossible for Summers to make it out of the Senate banking committee vote needed before full Senate confirmation, which basically killed any chance for nomination.

This is a surprise, as Summers was largely “priced in” in the Treasury market, the dollar, and gold, especially after last Friday’s Nikkei article (bet that reporter didn’t have a good Monday).

Yellen will now be the overwhelming favorite to replace Bernanke, with Don Kohn a longshot.  Very short term (and I mean basically just today) this is positive gold, equities and Treasuries and negative for the dollar.  Longer term, Yellen over Summers isn’t a major game changer from a policy standpoint, but it is “dovish” on the margin and likely a boost for inflation linked assets.

The important positive from this news has more to do with continuity than it does policy.  The Fed is more involved in markets than ever, and I think it is a positive there’s going to be continuity (assuming it’s Yellen) as the Fed unwinds its balance sheet, because the truth is they are making this up as they go along.  As we know, markets hate uncertainty, and Summers, however qualified, was an unknown.  With Yellen as Chairman, there will be continuity, and that is a positive for stocks.  Bottom line is the market “knows” the Fed under Yellen, and happily one major decision from Washington appears to have resolved itself without major fighting or drama.