Current Federal Reserve Chairman Janet Yellen joined former Chairmen Ben Bernanke, Alan Greenspan and Paul Volcker at a panel discussion in New York. It was held at the International House (with Greenspan chiming in via video connection), the first such gathering since the celebration in 2013 of the Fed’s founding 100 years earlier.
There was the usual happy talk about unemployment, long-term growth, and the Fed’s plan to only raise rates gradually. That’s the same thing we’ve heard lately in speech after speech and interview after interview.
But what I found more interesting was Yellen’s flat-out denial of financial excesses, including her argument that this is “not a bubble economy.” Bernanke also downplayed any talk of economic and credit cycles, saying expansions don’t die of old age. He added that he doesn’t “see any particular reason to believe a recession is any more likely in 2016 than it was in 2015 or 2014.”
|Greenspan and Volcker discuss the economy in a file photo.|
I could easily point out how truly ridiculous Bernanke’s argument was that the mortgage crisis was “well-contained” back in the mid-2000s. Or I could note that Greenspan only saw limited “froth” when he was at the helm. Those predictions failed spectacularly.
But what’s more important for the here and now is that the easy-money cycle from 2009-15 has inflated TONS of bubbles. They’re not hard to spot at all. Indeed, as I noted in December when the Fed first hiked interest rates, “We’ve had a massive, easy-money-fueled rally in almost every asset on the planet.”
Trillions of dollars of negative-yielding government bonds.
Commercial real estate (again).
The list of wild excesses and risky behavior financed by the biggest flood of cheap, easy money in world history goes on and on.
As for the economic and credit cycles, they’re no figment of my imagination. They are consistent, powerful forces that drive virtually every market move in history.
Bernanke may think the economy can keep growing forever, despite multiple signs that credit is getting tighter and that growth is falling. But fund managers with $600 billion on the line disagree , and I do too.
You can already see signs of weakness in everything from retail spending durable goods orders to auto sales.
As a matter of fact, lousy inventory figures released this morning drove the Atlanta Fed’s “GDP Now” prediction of first-quarter growth even lower. It dropped to 0.1%, a massive cut from an estimate of around 2.7% several weeks ago. The economy may even have SHRUNK in the first three months of 2016 – something hardly any of the highly paid cadre of Ivory Tower economists on Wall Street (not to mention the Fed) saw coming.
|“Don’t look to this Fed leader, or her predecessors, for truth-talking about bubbles or the economy.”|
My advice? Don’t look to this Fed leader, or her predecessors, for truth-talking about bubbles or the economy. Follow the guidance of independent analysts with no ax to grind.
Also make sure continue to stick with the investment strategies that I believe will work best in this environment. I highlighted several of them in my morning column today.
One last thing: A potential “escape valve” for investors looking for protection and profit is gold. I don’t think it’s any coincidence that gold just notched its best quarter in decades at the same time several panicky central bank policy steps backfired. Nor do I think it’s a fluke that the Market Vectors Gold Miners ETF (GDX) … a diversified collection of mining stocks … just hit its highest level in 14 months today.
I went into more detail about what’s driving gold, and where it’s likely to head next, in a timely, information-packed webinar on Monday. If you missed the session, called “The Next Phase for Gold, and How to Profit From It,” you can watch it in its entirety online here. I may be biased. But I think it’s worth your while to watch.
Now, I’d love to hear your thoughts on the Fed-head confab in New York. Are Yellen and Bernanke correct, and the economy in good shape with nary a bubble in sight? Or are burst bubbles and recession major threats to the economy and the market? What do you think of the plunging GDP estimates? Or the Fed’s forecasting track record? Hit up the discussion section and let me know.
My colleagues and I tackled a lot of diverse topics this week here in Money and Markets – and I’m pleased to see many of you weighed in on them here at the website.
With regards to Fed policy, Reader Frebon said: “Every time the Fed had the opportunity to raise rates, someone said ‘BOO’ and scared Janet back into her cocoon. She will go down as the worst chair in history and probably will be a zero factor in the coming downturn.”
Reader Charles added: “Amen to that, Frebon! The Fed made the stock market the only game in town by driving interest rates substantially below the rate that anyone with a brain would think reasonable, and took away the incentive for people to create wealth.
“Do these federal Banksters know how to do any good for the long-term economy, or is their focus only on the next five minutes? They have the attention span of a 2-year-old, coupled with the intelligence of a donkey.”
On the question of earnings and stock prices, Reader Will said: “You say stocks peaked (symptom) because earnings fell (cause)? I say earnings fell (symptom) because of the real causes: Socialism, poor governance, the Fed, and misplaced Keynesian concepts.”
Speaking of socialism as an economic system, Reader Jim said: “For all of its good points, Socialism features a fatal flaw. It doesn’t generate enough economic activity to maintain itself. Forget the politics. Virtually every Socialist society runs out of money. Here, as in Europe, the system is being crushed under a mountain of debt.”
Reader Howard added: “How long has it been since government, business enterprise, and those really interested in peoples’ concerns actually sat down and listened to each other? If we are going to bake a successful economic cake, everyone needs to come to the table.
“Government control, scares away free market capital. An interfering Fed confuses free enterprise. And arguing politicians don’t inspire confidence.”
I appreciate all the comments, and I hope you continue the discussions online over the weekend. The comment section is at the bottom of this piece.
The commercial real estate bubble – which has been particularly bubble-icious in the apartment sector – is continuing to deflate. A handful of research organizations found rental-rate growth slowed, vacancy rates rose, and uptake of new units decelerated in the first quarter, according to the Wall Street Journal. I think things will get much worse over time, given the economic slowdown I see unfolding and the massive overbuilding we’ve seen in the multifamily market.
SpaceX is resuming cargo deliveries to the International Space Station with a launch today. The company founded by Tesla (TSLA) executive Elon Musk failed in its last delivery 10 months ago, with its Falcon 9 rocket disintegrating in flight.
Lastly, the television show American Idol ended its 14-year run yesterday. Trent Harmon beat out La’Porhsa Renae for the 15th and final title. The 25-year-old resident of Mississippi waits tables at a family restaurant.
So did America vote for the right Idol? Will SpaceX manage to work the kinks out of its launch process? Will the surge in rents and apartment construction flame out soon? Will Fed members ever stop making speeches and appearances … even for a few days … again? Let me know your thoughts in the comment section.
Until next time,