Honey EC: This is something new on the blog - a very short audio link. I hope to be able to occasionally bring you more clips of really interesting comments from Moneytalk.
DID BB CHANGE THE MARKETIMER TIMING MODEL AFTER 2008 MELTDOWN....Caller Rob from Lincoln and Brinker's response. You can listen to this fascinating call. Many thanks to dRahme for this short clip from Moneytalk - LINK.THREATENING TO RAISE RATES HAD NO AFFECT ON STOCK MARKET EXCEPT VOLATILITY.....BB comments: The FOMC minutes revealed that the Federal Reserve believes that a rate increase in June would likely be appropriate if the economy continues to improve.… It had very little effect on the stock market because the market went up. The S&P 500 gained about six points for the week – finishing the week out at the 2052 level – a gain of about 3/10 of 1% for the week.… Although it did cause some intraday volatility.…
GDP AT 1% AND GOING TO 2% MEBBE....BB continued: Most Fed watchers were really surprised when they saw the minutes from the April meeting because they believed that the Fed would not raise rates at the June meeting.… One of the reasons is because, based on current information, the rate of increase of the economy in the first quarter this year is running at a slow rate of less than 1% annualized. Another reason is because the estimates of annualized real GDP growth in the second quarter....are running in the general area of 2%… Which certainly is below the long-term growth trend of the United states economy.…
UNEMPLOYMENT "NUMBER" LOW, BUT LOTS ARE OUT OF WORK.....BB continued: The unemployment rate is about 5.0 – that is certainly a number to bring smiles to the faces of Fed participants… But then when you look at the underemployment rate, there's no reason to smile - no reason to feel satisfied with that - because it is close to 10%.…
WHAT IS FED'S GAME - NOT EVEN ANY INFLATION.....BB continued: So one has to begin to wonder what is the end game at the Federal Reserve. The Fed has stated that they have a goal of 2% inflation.… They don't want deflation - but they're not there. The annual rate of inflation right now.....is in the general area of 1%. We don't have a pressing inflation issue right now. And when you look at the global markets, they are easing on steroids right now.
HEY RUBBER CHICKEN GUYS (AND GAL) WHAT'S THE BIG HURRY… BB continued: What is the hurry to raise rates? Where is the pressure coming from that is forcing these Fed governors to go out on the rubber chicken circuit and tell the world we have to raise rates – maybe even have to raise two or three times this year. … Higher rates are designed to a as a means to an end to keep the economy from overheating. … Is that the case – no way.
HEY MADAM CHAIR, DON'T DO IT JUST 'CAUSE YOU CAN....BB continued: But higher rates are not an end in-and-of themselves.… The Federal Reserve should not be raising rates just to raise rates. The Federal Reserve should not be raising rates just so they can fulfill their earlier forecast that they were going to raise rates.… Think back to what happened last December…
DOLLAR PEAKED, CONSOLIDATED, THEN REVERSED....Brinker comments: We have seen a reversal trend in the US dollar. The dollar had peaked out close to the beginning of the year – then it consolidated until late April and now it has reversed to the upside, and has been putting on a strong performance since mid April - but I would say especially so this past week.…
STRONG DOLLAR CREATES A CONUNDRUM....BB continued: The strong dollar creates a headwind for the US economy. This is one of the conundrums that the Federal Reserve has to deal with as they decide what to do with rates… When the dollar is strong our exports become more expensive overseas… At the same time, our imported products here tend to become more price competitive and put more competition on the shelf against domestically produced products.…
BJ CLINTON AND HIS TRADE TREATIES.....BB continued: We've had a couple of really huge trade deals under William Jefferson Clinton – which he heavily promoted – NAFTA, the North American Free Trade Agreement that has become highly controversial. And Clinton also promoted GATT, the Gen. Agreement on Tariffs and Trades.… He is also the one who signed the legislation killing the Glass-Steagall act that did such a good job in the 1930s until he killed it with his signature in November 1999.
ON THE OTHER HAND, YOU DON'T "GET NO SATISFACTION" ERR CREDIT, ONLY WHEELBARROW LOADS OF NEGATIVITY.... BB continued: But you heard the old saw, you don't get too many compliments but you get all the complaints… People are reluctant to compliment you no matter what you have accomplished… But they will dump of wheelbarrow of negativity on you on the other side. That's what I think you're seeing with the trade agreements.....Globalization is here to stay and you can't blame job losses on any one Party.
US ECONOMY RELATIVELY AND COMPARATIVELY SPEAKING.....BB continued: On a relative basis, compared to other industrialized nations around the world, the United States is done relatively well. the reason I say that is, we had been growing in recent years a little bit over 2% – adjusted for inflation – real growth in gross domestic product. And we also lower the unemployment rate to 5.0. I think the underemployment rate is a little bit higher than we would like to see it. And we also have kept inflation down. So relatively speaking, we have done pretty well.
FED GETS ALL THE CREDIT BECAUSE.....BB continued: Unfortunately, I have to give all that credit on that to the Federal Reserve. The reason I have to do that is because the only government body that has done their job is the Federal Reserve.…
DONALD TRUMP MAY BE YOUR GUY, BUT GIVE BRINKER A BREAK - HE AIN'T PART OF THE MEDIA....Caller Marvin fretted about the cost of the military. Brinker responded: "You may have your candidate. Donald Trump has been asking about why we have tens of thousands of American troops in the demilitarized zone between North Korea and South Korea on our payroll… He's been campaigning on why we have so many troops in Germany so many decades after World War II. Why we have so many military operations in Japan. Your candidate could be the Donald."
Marvin replied: "You guys are not going to hold their feet to the fire. You guys are going to give them a pass. They promise this stuff and then when they are elected, they are not going to do it.… You guys in the media do not hold their feet to the fire."
BB bristled and said: "Marvin please, give me a break will you. I'm not in the government, I have no legislative power to do anything. Give me a break. Putting that on me is ridiculous. Putting that on me is absurd. You are losing your credibility quickly."POLITICS: The vast majority of the program today involved politics either directly or indirectly. I covered a few of Brinker's comments about Donald Trump and Bill Clinton. Bill Clinton is pertinent to Hillary Clinton's candidacy because she stated last week that she intends to put her "husband" in charge of the US economy.
Marvin: "Listen, the media is as big a part of the problem as the politicians."
BB responded: "You can't possibly count this program as a media broadcast. This is not a news broadcast or a cable channel broadcast. That is not what this program is about. What are you talking about?. If you listen to this program today, we talked about many different topics. I don't know what you're talking about."
FRANKJ'S MONEYTALK GUEST INTERVIEW SUMMARY
Today’s guest on the May 22, 2016 3rd hour of MoneyTalk was former Minneapolis Fed president Narayana Kocherlakota, who served from Oct. 2009 to the end of 2015.
As one might have expected, Bob led off with questions about why various Fed governors hit the rubber chicken circuit almost weekly and talk about what might happen with regard to interest rates. The guest said it fits with their need to communicate to business and the public about Fed policy. They make it clear they are expressing their own thoughts on what should be done and that they are not speaking for the Chair, Janet Yellen.
No rate hike next month if it were up to him. The guest said we’re in a challenging time given what the rest of the world is doing. We don’t want to do something that will come back and bite us.
Will Bob Brinker address the Fed Open Market Committee? He won’t (but he’d probably love to.) He would tell them that interest rates are not an end in themselves, they are a means to an end. The guest agreed. The FOMC is too caught up in the objective of a path to normalization of interest rates. Instead, they should focus on where the economy should be. He was clear that he does not think it is time to raise rates.
Are savers left out in the cold? Yes, but it’s all in a good cause. That cause being the desire to stimulate consumption. Savers may lose out but borrowers win out and have better income. The Fed wants to create incentives to spend today. He added that the world wide supply of safe savings assets has shrunk.
Does politics play a role in Fed policy? It did in the 60’s and 70’s as old Fed minutes indicate, but no more. Joe from San Clemente asked whether Janet Yellen’s recent visit to the White House involved politics. The guest said he did not think so. The White House leaves the Fed alone to do its thing. The guest gave an example of Fed policy being indifferent to politics by noting that QE2 was announced right after the Nov. 2010 election. (Ed. comment: I don’t see how this demonstrates Fed independence.)
What would a Fed discussion be without talk of auditing them? The guest knocked this one out of the park by saying this talk in Washington has mostly to do with Congress wanting to get its nose under the Fed policy tent. Their actual books are audited by name brand accounting firms.
Caller Mary from Albuquerque missed her turn at bat as lead off caller, but got back in the game later with her question about gold. How safe is it, and is there risk of another 2008? The guest was sanguine about another 2008: “lots of safeguards.” As to gold, the two reasons people own it are when there is general uncertainty and when there is inflation risk. No inflation risk now, in fact, inflation is down – a point he made several times.
A caller from Overland Park, Kansas asked why is economic growth so slow? I’m not sure the guest gave a solid answer. Interest rates haven’t helped that much and they’re about as low as they can go. The Fed bought bonds but that didn’t make a big difference. Finally he said fiscal policy is needed to help. (It would have interesting to hear him elaborate on the fiscal policy point. Fed = monetary policy. Congress = fiscal policy, i.e. spending).
Caller Danny from Atlanta was the first caller to MoneyTalk in my recollection who was the on the receiving end of a snarky little introduction by Bob Brinker before he came on the line. Bob, obviously disagreeing with what Danny was about to say, said “not all calls have a valid premise.” Danny’s question was in regard to inflation and the Fed’s pursuit of a long-term 2% inflation figure. “Why does the Fed think devaluing my wages is good policy?”
I’m not sure Danny was convinced with the guest’s answer which was: a little inflation is good for him because it stimulates people to spend more now, which means more consumption, more hiring…
I think we experienced another MoneyTalk first with the final caller, Michael from Chicago listening on WLS. When Bob went to him, we heard only the sound of a toilet flushing. Bob made a smooth recovery and wrapped up at 3:51 pm.
Honey here: Outstanding interview and summary - thanks, Frankj!
JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION
Bob Brinker referred to the latest comments coming from the FED as:
A) Slight of hand.
B) Smoke and mirrors.
C) Hijinks and mystery.
D) Lies and deceit.
Honey here: Thanks Jeffchristie...I especially enjoyed the first part of the answer.
PODCASTING: Los Angeles. KABC 790. Moneytalk plays two hours later in the evening. They podcast and ARCHIVE podcasts.