The Writing is on the Wall

[haha]

We’ve got to address that if we are going to continue to be the greatest
nation on earth. And that is the thing that I’m going to be focused on for
the remainder of my presidency, along with the basics like making sure
nobody blows us up.

CHARLIE ROSE: Some people would like to see you announce that you are
reappointing Ben Bernanke as chairman of the fed.

BARACK OBAMA: Well, I think Ben Bernanke’s done an outstanding job. Ben
Bernanke’s a little bit like Bob Mueller, the head of the FBI --

CHARLIE ROSE: Yes.

BARACK OBAMA: -- where he’s already stayed a lot longer than he wanted or
he was supposed to. But I think he’s --

CHARLIE ROSE: But if he wanted to be reappointed you would reappoint him?

BARACK OBAMA: He has been an outstanding partner along with the White
House in helping us recover much stronger than, for example, our European
partners from what could have been an economic crisis of epic proportions.

CHARLIE ROSE: I’m at the end of my time but I do take this opportunity to
say "Happy Father’s Day". You’re off to a recital by Sasha or Malia -- I’m
not sure which one.

This is excerpted from the transcript of the Charlie Rose/ Obama interview Sunday. I left the sentence before and after the Fed relevant part to show that it is complete.

Ha

 

[samclem]

Bernanke's present term expires in 2014. I guess it will be up to the next Fed chief to clean up after the party. Ben got to be the nice guy, somebody (hopefully) will need to be voice of reality.

The right thing for Bernanke to do would be to signal the end of QE before he leaves, gain support at the Fed for that course of action, and start the process. We'll see.

 

[ejman]

Thinking back to what things looked like in 2008 some thoughts come to mind- Maybe the FED should have let it all blow up and dive right into Great Depression II instead of this muddle we have lived thru the last 5 years. Perhaps in the great tradition of improvement we could have exceeded some earlier markers. Just think instead of a 90% drop in the stock market in GD I we could have had 99% in GD II - instead of 25% unemployment in GD I why not get to a nice round 50% in GD II? After all, we really should improve on past performance no?

Although I don't like the history of the last couple of decades or so I think we could have done a lot worse than having a GD I scholar in charge of trying to avoid GD II. I think we got lucky.

 

[califdreamer]

So our recovery has been much stronger than our European partners, as Obama said. Any argument there?

 

[clifp]

So our recovery has been much stronger than our European partners, as Obama said. Any argument there?

We have partners in Europe?

 

[PokerGrumpy]

So our recovery has been much stronger than our European partners, as Obama said. Any argument there?

At some point we are going to have to repay all the money we borrowed to purchase this recovery. I'll wait until that day comes before I answer. What looks like a recovery today may simply be a deferred crisis.

 

[ERhoosier]

So our recovery has been much stronger than our European partners, as Obama said. Any argument there?

I do not see US as in "recovery" so much as stabilization. I mean prolonged, sputtering 1.5-2.5% ave GDP growth over past 3 yrs is historically pathetic- particularly when emerging from a downturn as steep as 2008. And true unemployment (BLS U6 stat for un- plus under-employment) has remained stubbornly stuck around 14%. A real recovery (with major net job growth) is the 5-7% GDP growth of mid-80's, or the sustained 4-5% of the late '90's.

And not sure it's right to look at Europe as a whole. HUGE difference between Germany & Greece.

IMHO- The world's current 'easy money' environment is not just US issue, but includes Asia (Japan, China) as well as Europe. Capital has become a world commodity of sorts as $billions in debt instrument trade globally with just keystrokes.

The real challenge that Ben, ECB, Abe, etc. have created for others to manage is how the world (hopefully!) eases out of this artificial flood of easy capital & back to more normal conditions. Some are just now starting to realize that prolonged artificially low interest rates may have their own negative economic effects. Low interest income (e.g. for ER's) means less $$ to spend on goods & services, and consumer spending is biggest piece of any developed economy.

 

[Bikerdude]

Someone has to take the fall.

 

[ERD50]

So our recovery has been much stronger than our European partners, as Obama said. Any argument there?

I take it you weren't expecting any argument?

-ERD50

 

[Mulligan]

Someone has to take the fall.

I could be wrong, as I am certainly not in the inner circle, but all I have been reading for over a year is that his friends have been quoted often, that he is tired and looking forward to winding down his term. No reason for the President to stir up speculation about reappointment, if they are both satisfied with his completed term.

 

[bUU]

And true unemployment (BLS U6 stat for un- plus under-employment) has remained stubbornly stuck around 14%.

I realize that Boston-Cambridge-Quincy Metro NECTA is tops in the country right now, economy-wise, but we've seen an increase in number of people employed 11 months out of the last 12, and that's a really good sign.

 

[gauss]

Anyone else worried about his likely replacement, Janet Yellen, commonly known as the inflation dove (ie more concerned about the Fed managing unemployment as opposed to inflation)?

-gauss

 

[bUU]

Given that QE is predicated at least in part on the unemployment rate, I don't necessarily see that as a big change.

 

[tryan]

Wow ... all this doom n'gloom with the market at an all time high.

Must be climbing the wall of worry.

 

[RAE]

At some point we are going to have to repay all the money we borrowed to purchase this recovery. I'll wait until that day comes before I answer. What looks like a recovery today may simply be a deferred crisis.

I agree. Here is what David Stockman says about Bernanke's QE:

Former White House budget director David Stockman tells The Daily Ticker, “I don’t think there’s any consensus or keen understanding about how they back out of this, how fast they do it, how they communicate it.”

Stockman says the Fed’s asset purchases, known as quantitative easing (or QE), and near zero interest rates policy is wrong-headed.
“We experimented. We violated every rule of sound money, every tradition that ever existed of what a central bank does on the theory that there was going to a great depression if we didn’t.”
But the reality, says Stockman, was different—a severe recession was in the making because of “the housing and credit boom” fueled by the Fed’s policy of low interest rates under Chairman Alan Greenspan and then Ben Bernanke. “It wasn’t going to be a Great Depression,” says Stockman. And now, says Stockman, “ All this cheap money is doing nothing but creating a temporary illusion of recovery setting us up for the next fall.”

 

[samclem]

Wow ... all this doom n'gloom with the market at an all time high.

Must be climbing the wall of worry.

Right on time. I suppose some people see no reason to think the stock market is being supported largely/only by Ben's easy money (and concomitant low interest rates). The market differs with this assessment. Wall St. drops after Bernanke hints at slowing stimulus | Reuters

Stocks fell more than 1 percent on Wednesday after Federal Reserve Chairman Ben Bernanke said the central bank would start to reduce its stimulus measures later this year if the economy is strong enough.

(Emphasis added)

 

[ERhoosier]

While I thought some investment camps were looking for an excuse to take some profits no mater what Ben said this afternoon, must admit I was surprised by the extent of market reaction. I thought his comments were somewhat reassuring in stating risk of serious economic downturn was a bit lower since last Fed meeting, and any QE "tapering" would be based on future conditions vs any specific timeline.

 

[pb4uski]

The market commonly overreacts - why should this one be much of a surprise.

IMO, anyone who frets about a specific day's market movement probably shouldn't invest in equities (I'm taking in general, not directed towards you).

 

[packrat44]

I agree. Here is what David Stockman says about Bernanke's QE:

Former White House budget director David Stockman tells The Daily Ticker, “I don’t think there’s any consensus or keen understanding about how they back out of this, how fast they do it, how they communicate it.”

Stockman says the Fed’s asset purchases, known as quantitative easing (or QE), and near zero interest rates policy is wrong-headed.
“We experimented. We violated every rule of sound money, every tradition that ever existed of what a central bank does on the theory that there was going to a great depression if we didn’t.”
But the reality, says Stockman, was different—a severe recession was in the making because of “the housing and credit boom” fueled by the Fed’s policy of low interest rates under Chairman Alan Greenspan and then Ben Bernanke. “It wasn’t going to be a Great Depression,” says Stockman. And now, says Stockman, “ All this cheap money is doing nothing but creating a temporary illusion of recovery setting us up for the next fall.”

I agree totally with Stockman.

 

[Gatordoc50]

The market commonly overreacts - why should this one be much of a surprise.

IMO, anyone who frets about a specific day's market movement probably shouldn't invest in equities (I'm taking in general, not directed towards you).

Or bonds.

 

[ESRwannabe]

What these broad market declines tell me is that my "new" investment strategy of the past few years suits my personality better than what I have done in the past (i.e. Bogleheads).

I've found that the best way for me to invest is to go back to the "widows and orphans" formula based on dividend and interest income. The ability to ignore share price fluctuations, because my returns do not count on any capital gains, is wonderful.

Buying individual stocks also makes it a lot easier to determine if a share price change is logical. Something I find almost impossible to do with financial instruments, i.e. mutual funds and etfs.

With an individual stock, four times a year you will get good data on a company and can see what's really going on. If the end of easy money starts to affect a company you own you will see it in the quarterly data.

 

[sengsational]

Or bonds.

+1

 

[almost there]

Some day they will quit printing $85b per month and the over night lending rate will be more than zero (.13%)..
What will this do to Bond prices?
Stock prices?
Interest rates?

 

[bUU]

My financial adviser presented a chart showing what happened last time (60? years ago): With interest rates on the rise, 10-year bond prices plummet at remarkable rates, and 30-year bond prices drop at mind-boggling rates.

 

[RAE]

Some day they will quit printing $85b per month and the over night lending rate will be more than zero (.13%)..
What will this do to Bond prices?
Stock prices?
Interest rates?

Charles Hugh Smith has been writing a lot about this lately. Here is his blog from yesterday, which I find thought-provoking, whether you agree with him or not:

charles hugh smith-Weblog and Essays