Media Appearance: CNBC’s Morning Call (09/11/07)

have fun…not watching any TV today…..can’t take the cheer-leading and the constant “patriotism”…….

I’ve heard three times already (before I turned the TV off) that it was our patriotic duty to buy stocks………

get used to it though…..thats what Guiliani will be doing for the next 11 months…

Pretty effing shameful

Ciao
MS

What Ben said is the dollar MUST go lower as part of the solution to correct the CA imbalance. It’s now put on the table as official recognition. Alot lower. The strategy now is to control the slide.

If Mr. Bernanke said “the dollar MUST go lower”, does this remove a major reason for the FOMC to not cut the Fed Funds rate on September 18?…

I guess a rate cut gets just a little more affirmed if it is a fall in dollar that Ben is looking for.

pj, agreed, he just wants a slow fall, not an elevator drop.

Why did the U.S $ INDEX (NYBOT:DX)fall at 11AM but then immediately started to rise quickly as soon as the speech was out?
Strange, some read the speech as the interest rates are low enough, we need to save the $, others read exactly the opposite. And thats probably what Bernanke wanted.

More gas!!!

I NEED MORE GAS TO PUT OUT THIS FIRE!!!

today was a sucker rally….

Barry, I thought I heard you this morning, while I was napping. Sounded good, and you were making good points. This brings up my biggest complaint about that channel. The producers there must really be some inflexible sobs. They run programming like the swiss railroad. Each segment has its slot, and 99% of them are under 5 minutes? C’mon guys, how about some depth? How about some flexibility to run the good discussions longer than their slot? Is that really to much to ask for? How is Barry supposed to get his point across in a few minutes (if he’s lucky) of soundbites, and when he gets cut off exactly when he gets to his point? Happens to all speakers on the station. Except Kudlow for some reason, and his Laffer crony. And never have I heard two voices who more need to be cut short.

Here’s some commentary from me (per my usual ***) regarding recent FOMC member speeches. I’ll first reference the link to a news piece or speech, then quote from within the text and make comments:

http://biz.yahoo.com/ap/070911/bernanke.html?.v=9

“So-called ‘global imbalances’ occur when countries such as the U.S. run up bloated trade deficits, while other countries, such as China and oil-producing nations, produce big trade surpluses. As for prospects of fixing the problem, Bernanke said, ‘Signs of progress have appeared but … most countries have only just begun to undertake the policy changes that will ultimately be needed.’ “

***What, pray tell, sort of policy changes does he expect that t-h-e-y might use that would reverse the U.S. bloated trade deficit? Isn’t he himself part of a body that is at least contemplating an additional stimulus to the financial system that would just run the bloat even bigger? I suppose it would be possible to recommend a number of such policies to them to promote their domestic consumption (demand), but none of those would reverse the negative saving trend in the U.S.

“As is well known, however, further progress on the U.S. current account seems unlikely without significant increases in public and private saving in the United States.”

***There isn’t much chance of that happening when the Fed is accommodating phantom asset price appreciation, thus obviating the necessity to save funds in short-term commercial markets (bank/S&L intermediation).

***Here you can get Bernanke’s Berlin speech along with links to footnotes in it:

http://www.federalreserve.gov/newsevents/speech/bernanke20070911a.htm

“What is surprising, however, in light of historical patterns, is that much of the increase in current account surpluses during this period took place in developing countries rather than in the industrial countries.3”

***Nothing surprising about it at all. Under my own personal definitions, all money derives from intellectual or mechanical labor… and thus much surplus money is being created where that intellectual or mechanical labor is being e-x-c-h-a-n-g-e-d, and that’s in the developing countries of the Third World. The historical patterns he’s referring to were those occurring during all the economic developments of the past in which industrialized nations benefited from the manufacture of products they would sell to cultures not capable of competing. Infrastructure was nearly non-existent in the Third World and political and cultural barriers hid them behind some type of curtain, iron, religious, or one of distance. Raw resources flowed from the Third World to the West and then back again to the Third World as finished value-added products. Now, raw materials are moving from the West to the Third World where the intellectual or mechanical labor is the value-added component that they apply to goods and services they ship back for the West’s consumption. Technology and the removal of prior barriers to homogeneity have made our competitors… our neighbors.

***Now Mishkin’s most recent speech found here with appropriate footnotes:

http://www.federalreserve.gov/newsevents/speech/mishkin20070910a.htm

“As I look at the incoming inflation data, I would judge them to be consistent with expectations in this range; moreover, I believe that having expectations reasonably well anchored in this range has been a helpful influence on the path of actual inflation. However, let me be clear: I do not subscribe to a deus ex machina view of the inflation process, in which inflation is driven solely by inflation expectations and is little influenced by the balance of aggregate demand and aggregate supply.”

***That deus ex machina was e-v-e-r-t-h-i-n-g that Volcker believed in, and he understood that those expectations can reach the level of being mystical and self-effecting.

“Indeed, I take the view that expectations of future resource utilization are also an important factor affecting inflation outcomes. If households and businesses believe that the Federal Reserve will set monetary policy in a way that keeps aggregate demand in reasonable alignment with aggregate supply over time, then expectations of future resource utilization will be stable, and current resource utilization will provide less information about future inflation movements. In that situation, which I believe describes the current environment, inflation expectations will be a key driver of inflation dynamics.”

***The Greeks relied on deus ex machina because of its psychological imagery. I would hope Gov. Mishkin would give the psychological more credence as well:
http://en.wikipedia.org/wiki/Deus_ex_machina

***And finally Poole’s most recent speech directed specifically at monetary policy:

http://stlouisfed.org/news/speeches/2007/07_31_07.html

“If the central bank is willing to push as hard as it takes, regardless of short-run consequences to unemployment and especially to the bond and stock markets, then market participants will develop firm views on the likely rate of inflation in the future. The Fed must convince market participants who bet against it that they will regret their bets.”

***A more forceful recommendation to hold steady (to my mind) than Mishkin’s statement above. This would put Poole a lot closer to Volcker’s philosophy of monetary policy use than to Greenspan’s, not just in the manner that Bernanke has reportedly altered his philosophy, when in fact Bernanke himself reported in the Jackson Hole speech his recognition that monetary policy effectiveness itself is what has changed… maybe not necessarily his philosophy as compared to Greenspan’s.

“It is highly desirable that the central bank behave in a rule-like way, both for the political objective of the rule of law rather than the rule of men and because predictable policy promotes more efficient decisions in the private sector.”

***When market participants have confidence in a stable monetary system, they are better able to allocate risk and calculate the marginal efficiency of capital expenditure. Volcker recognized that this status was so important as to be worth the sacrifice required to achieve it.

“The right question to ask is not whether Fed action in response to any current market upset would be desirable but rather whether it is possible to define a systematic response to market upsets in general that would be helpful. The answer I give is that effects on the economy can rarely be understood without passage of time and more information. Occasionally, there is contemporaneous evidence of damage to market mechanisms that might justify quick Fed action.”

***Strangely leaning toward double-talk, except that the work “might” is key, and then he explains…

“The key point is that, in these situations, the market is making judgments on security prices, stabilizing the economy without the Fed having to lead the way. This is exactly the process envisioned a generation ago by the monetarist advocates of steady money growth. This is what Milton taught us about markets, and he was right.”

***And Milton Friedman was possibly Bernanke’s most notable m-e-n-t-o-r.

“When inflation expectations are firmly anchored, an important reason for the Fed to let markets take the lead is that overactive Fed responses to market developments set precedents that tend to destabilize markets in the future. If the market believes that the Fed is always primed to adjust policy, then market participants will spend more time trying to second-guess the Fed than trying to understand what is happening to business and household behavior. As I emphasized earlier, a good market equilibrium requires that the Fed behave as the market expects. When there are widely varying interpretations in the market about what is happening, it is impossible for the Fed to behave as the market expects because there is no unified view in the market about what is happening.”

***Over-reactive FOMCs that do not allow markets themselves to make the judgments required to stabilize the economy set p-r-e-c-e-d-e-n-t-s that tend to d-e-s-t-a-b-i-l-i-z-e markets in the future. That is unfortunately a picture of FOMC policy during the period in which rates were pushed so low.

DK said:
ooh spidey senses tingly, i sense a major rally acomin’ due to all the whining by the experts here lol

save some face, cover now

I suspect that you are right about that, albeit short term. I took profits out of TLT yesterday and put half of the proceeds into 90 day CDs. I am waiting to see what happens into next week. I will probably buy a small QQQQ straddle just before The Big Announcement with tight stops on both sides, otherwise, I think that I will keep my powder dry until things really break one way or another.

It’s really easy to look at everything and conclude that we are on the Highway to Hell. We might be, but do not “misunderestimate” the power of The Alien Lizard Men and do not short this market, just wait for it to bottom, then get in step as it goes up thru the end of the year. I am guessing the all-clear will be around Oct 15, then it will be time to go all-in long.

=whipsaw=