I had my whole post typed up this morning, and then somehow Blogger lost it and it was gone. I was too busy to retype the whole thing, so I'm just posting some comments at the close.
Today's rally was constructive, even as rallies continue to come on lighter volume for the most part. Additionally, the rally has been led by defensive type names, not the traditional high quality growth names you normally look to for leadership.
There were some solid economic reports today with a good ADP Employment report and a better than expected Chicago PMI report. The big test comes on Friday with the monthly govt. payrolls report. I tend to think they will be disappointing, but we shall see.
Gold prices were higher this morning, but finished lower at $1827; Oil prices finished flat near $88.91.
The 10-year yield got a little bounce, rising to 2.21%; and the VIX closed down -4% to 31.60. But the fact that it is remaining stubbornly above the 30 level makes me think that we haven't seen the last of the volatility days in the market. Next week, after the Labor Day holiday volume levels should pick up again.
Trading comment: No changes to my near-term strategy. I don't want to be lulled into a sense of complacency with these low volume rallies. SPX 1250 still looms as big resistance. So I am remaining cautious, and continuing to trim cyclical names and lagging positions.
31 Ağustos 2011 Çarşamba
An Interview with Pimco's Bill Gross
Last night I had the pleasure of speaking with Pimco's Bill Gross, one of America’s most famed investors, on CNBC’s Kudlow Report. Mr. Gross has generated big buzz over his admission that betting against U.S. debt was a mistake.
The full interview transcript and video follow below.
LARRY KUDLOW, host:
And most important, at the top, PIMCO's Bill Gross, one of America's most
famous and successful investors. He's generating big buzz today with his
superimportant and much talked about interview in The Wall Street Journal and
elsewhere. Mr. Gross says he has, quote, "lost sleep," end quote, over a bad
bet on Treasury rates. He acknowledged that selling all his funds, Treasury
holdings last February was a, quote, "mistake." And he went on to say, and I
quote, "We try to be very intellectually honest and honest with the public,"
end quote.
All right, for my part, I just want to say to my old friend Bill Gross that I
have nothing but admiration for his taking ownership and admitting a mistake.
We all make them. And by the way, he's setting a very good example for the
rest of us. That's just my take.
Anyway, it is always a real pleasure, especially tonight, to welcome back to
the show a special Kudlow exclusive, Bill Gross. He's founder and co-chief
investment officer of PIMCO.
All right, Bill. You admit to a big Treasury bond miss. Rates this year went
way down, not up. Can you tell us, please, why the interviews right now and
what message are you sending?
Mr. BILL GROSS: Well, I, you know, I think at PIMCO we always try and be
open with the press and the public. I mean, isn't that what voters want from
their politicians? Mohamed El-Erian, our CEO, write several op-eds a week. I
tweet daily and publish a monthly investment outlook, which came out this
morning, by the way. So we try to give an honest answer to an honest
question.
And by the way, in terms of the interview with the Journal and with the FT,
what I said was that--something that I think all bond and--bond managers would
say if they were honest. They would say, `Wish I'd own more Treasuries.' To
say otherwise would be to say something like you'd wished you bet on the Miami
Heat instead of the Dallas Mavericks. I mean, it's obvious who won, right?
KUDLOW: Obviously wrong. All right, well, anyway, you're very outspoken and
I respect you for it.
Listen, you were here--I looked back--June 8th we spoke. So what's that?
Three months ago. At that point, Bill, you repeated the call to get out of
bonds. Now the bonds rally more or less from 3 percent to 2 percent, today
they're at 2.20. What went wrong? How do you assess what went wrong with
your bond call?
Mr. GROSS: Well, first of all, I didn't say get out of bonds. I said get
out of Treasuries and move...
KUDLOW: Treasuries.
Mr. GROSS: ...and move into Canadian bonds and to Australian bonds and other
alternatives. What went wrong in terms of the Treasury call from 3 percent
down to close to 2 percent? Well, the economy slowed down dramatically. We
had a freeze-up, so to speak, in terms of Washington with the politicians and
policy options. It was recognized that fiscal stimulation, you know,
certainly wasn't going to be something undertaken for the next six to 12
months, if at all. It was recognized that the Fed was running out of policy
options and so the economy was slowing down and was--seemed to be slowing
almost permanently in terms of a 0 to 2 percent growth category.
KUDLOW: Have you basically lost confidence in the economy? You mention, I
think, in the FT article, Bill, you call it, quote, "a new normal minus." Have
you lost all confidence in our capacity to grow the economy?
Mr. GROSS: Well, no. You know, but the problem I have with the free market
capitalism, Larry, which is your philosophy, is not with the concept. In
fact, you know, PIMCO is an epitome of its historical thrust. We're very
successful and because of free market capitalism. But the problem I have is
with its apparent exhaustion in the face of three equally dynamic economic
influences. Let me mention them briefly.
First of all globalization has weakened American and developed economies by
syphoning off investment and, more importantly, jobs to emerging nations at
1/10th the wage cost. Take China, for example, Free market capitalism, in
other words, is working for China, it's working for Brazil, but it's not
working for America or Euroland.
Secondly and just briefly, free market capitalism depends on a balanced market
between labor and capital. And clearly we're reaching a point where
impoverished Main Street cannot afford to buy the goods that capitalism so
magnificently produces. So I think there's an exhaustion here in terms of
free market capitalism that has worked so well for 20 to 30 to 40, 50 years,
but now is reaching structural impediments that prevent, you know, strong
growth that we're used to.
KUDLOW: I want to come back to that towards the back end, Bill, but I just
want to narrow down for a moment. I want to drill down. According to the
reports, you are buying Treasuries. You're accumulating Treasuries. You have
a net positive exposure for the first time. Let me ask you, what if the
bond--the Treasury market has discounted a recession that doesn't happen? Are
you chasing the market? Is there a risk that the rate hikes that you foresaw
this year might still come to pass if the economy surprises on the upside?
Mr. GROSS: Well, that's possible. We read in the Fed minutes today of the
last meeting that the--that the two-year 0 percent or 25 basis point Fed funds
level is conditional, and we know that there are hawks, that there are doves,
and that should the economy recover to a 2 to 3 to 4 percent rate, that, you
know, perhaps inflation looms larger in terms of a threat. So anything is
possible. What I would say at the moment, though, is since the economy is
really moving closer to the zero level, since inflation probably will come
down gradually, you know, the Fed is at 0 percent for the next two years and
perhaps even longer than that, and that determines significantly the level of
Treasury rates in five-year space, 10-year space and even 30-year space.
KUDLOW: But, you know, it's interesting. We had Byron Wein on, a
distinguished investment guru on his own part. He predicted the S&P would
rally to 1400. OK? It's just over 1200 today, as you know, If that sort of
thing happened with better corporate profits, even consumer sentiment, which
tanked today but people are still buying washing machines and cars, retail
sales are holding up. If you had a big rally in stocks, the risk trade is
back on. That'll come out of Treasury bonds, and those could--that could
drive those bond rates back to 3 percent. You're buying bonds now. Are you
worried that there's a potential for whiplash?
Mr. GROSS: Well, I'm suggesting that the probability--that the high
probability is for interest rates to stay low for a long time. I mean, Byron
Wein basically is a a mean reversion cyclical type of--type of analyst. What
we're suggesting is that there are structural impediments to the US economy to
develop market economies that will prevent growth in the 3 to 4 percent
category.
Let me ask you, in terms of consumerism, in terms of the US consumer, if
unemployment stays at 9 percent plus and if wage gains--if real wage gains are
nonexistent, then were is the spending power coming from? It has to come from
the consumer as opposed to businesses. Businesses are waiting on the
consumer. The consumer is waiting on business. We have what we call a
liquidity trap. So what we're suggesting is not a reversion to the mean, not
a cyclical upthrust, but basically a structural impediment that produces
growth in the 0 to 2 percent category for a long time. Not just in the US,
but in Euroland, as well.
KUDLOW: All right. So let me--have you had any trouble with your fund--I
guess the Total Return Fund, because of the bond miss this year, rates went
down instead of up? Have people withdrawn from the fund? What are your
customers saying right now?
Mr. GROSS: We have a $245 billion customer base. You know, that customer
base is growing. We just got a billion dollar contribution from a large
corporation this week. There's been no lack of confidence. You know, to
suggest that a six to seven month timeframe for the PIMCO Total Return Fund,
which has produced results for the last 20, 30 or 35 years, is, you know, a
stretch of the imagination. We continue to produce fine results for our
clients.
KUDLOW: Oh, that's what everybody says. That's--everybody I talked to today
on this story said exactly what you said. Your record down through the years
has been superb.
Let me ask you this, are you still buying some corporate bonds and are you
still buying foreign bonds? You talked to me about that when you last
visited.
Mr. GROSS: Well, corporate bonds of the highest quality, yes. And that
would be A and AA-types of corporates, not high-yield bonds because they don't
do well, you know, if we near the recessionary level of 0 percent. In terms
of foreign bonds, let me just cite the comparison: a five-year Treasury in
the United States at 1 percent, actually little bit less; in Canada 1.7
percent; in Euroland 2.1 percent; in Mexico 5.4 percent; in Brazil 11 percent.
And these are countries, by the way, Larry, which have what we call clean or
dirty shirts. Mexico has half the debt of the United States. Brazil has half
the debt of the United States and has treasury reserves as opposed to
deficits. And so these are countries with higher yields and better balance
sheets.
KUDLOW: All right, last one. I'm going to come back to where you were on the
breakdown of free market capitalism, which is fair enough. I would
acknowledge that America's economy has been on the decline now for about 10
years. But I ask you, Bill, everybody is so profitable. Businesses are so
profitable, so much cash. Banks have more liquidity than they know what to do
with. Is it possible there's a buyer's strike, that there's a capital strike,
that the spending and taxing and regulatory threats out of Washington are
really the problem, not the free market capitalist system?
Mr. GROSS: Well, I'd have to say that that doesn't help. I mean, let's come
together on that point that regulation and too much of it--that taxation in
terms of the necessary reforms that probably lie ahead, you know, don't help
either in terms of the current economic environment. What I would say in
terms of corporate tax reform is, yes, let's reform taxes, let's reform
corporate taxes and let's reform individual taxes. But at the same token,
let's not lower them, because corporate taxes are 10 percent of total federal
revenues. They're at an all-time low, Larry. And to suggest that
corporations are the poor baby in this particular story, I think, is an
absurdity.
KUDLOW: All right. I'm going to leave that for the next discussion we have.
We have much more to discuss on corporate tax reform. But, Bill Gross, thank
you for your honesty. Thank you for your forthrightness.
Mr. GROSS: Thank you, Larry.
KUDLOW: And thanks for coming on tonight. I appreciate it.
Mr. GROSS: Yeah.
The full interview transcript and video follow below.
LARRY KUDLOW, host:
And most important, at the top, PIMCO's Bill Gross, one of America's most
famous and successful investors. He's generating big buzz today with his
superimportant and much talked about interview in The Wall Street Journal and
elsewhere. Mr. Gross says he has, quote, "lost sleep," end quote, over a bad
bet on Treasury rates. He acknowledged that selling all his funds, Treasury
holdings last February was a, quote, "mistake." And he went on to say, and I
quote, "We try to be very intellectually honest and honest with the public,"
end quote.
All right, for my part, I just want to say to my old friend Bill Gross that I
have nothing but admiration for his taking ownership and admitting a mistake.
We all make them. And by the way, he's setting a very good example for the
rest of us. That's just my take.
Anyway, it is always a real pleasure, especially tonight, to welcome back to
the show a special Kudlow exclusive, Bill Gross. He's founder and co-chief
investment officer of PIMCO.
All right, Bill. You admit to a big Treasury bond miss. Rates this year went
way down, not up. Can you tell us, please, why the interviews right now and
what message are you sending?
Mr. BILL GROSS: Well, I, you know, I think at PIMCO we always try and be
open with the press and the public. I mean, isn't that what voters want from
their politicians? Mohamed El-Erian, our CEO, write several op-eds a week. I
tweet daily and publish a monthly investment outlook, which came out this
morning, by the way. So we try to give an honest answer to an honest
question.
And by the way, in terms of the interview with the Journal and with the FT,
what I said was that--something that I think all bond and--bond managers would
say if they were honest. They would say, `Wish I'd own more Treasuries.' To
say otherwise would be to say something like you'd wished you bet on the Miami
Heat instead of the Dallas Mavericks. I mean, it's obvious who won, right?
KUDLOW: Obviously wrong. All right, well, anyway, you're very outspoken and
I respect you for it.
Listen, you were here--I looked back--June 8th we spoke. So what's that?
Three months ago. At that point, Bill, you repeated the call to get out of
bonds. Now the bonds rally more or less from 3 percent to 2 percent, today
they're at 2.20. What went wrong? How do you assess what went wrong with
your bond call?
Mr. GROSS: Well, first of all, I didn't say get out of bonds. I said get
out of Treasuries and move...
KUDLOW: Treasuries.
Mr. GROSS: ...and move into Canadian bonds and to Australian bonds and other
alternatives. What went wrong in terms of the Treasury call from 3 percent
down to close to 2 percent? Well, the economy slowed down dramatically. We
had a freeze-up, so to speak, in terms of Washington with the politicians and
policy options. It was recognized that fiscal stimulation, you know,
certainly wasn't going to be something undertaken for the next six to 12
months, if at all. It was recognized that the Fed was running out of policy
options and so the economy was slowing down and was--seemed to be slowing
almost permanently in terms of a 0 to 2 percent growth category.
KUDLOW: Have you basically lost confidence in the economy? You mention, I
think, in the FT article, Bill, you call it, quote, "a new normal minus." Have
you lost all confidence in our capacity to grow the economy?
Mr. GROSS: Well, no. You know, but the problem I have with the free market
capitalism, Larry, which is your philosophy, is not with the concept. In
fact, you know, PIMCO is an epitome of its historical thrust. We're very
successful and because of free market capitalism. But the problem I have is
with its apparent exhaustion in the face of three equally dynamic economic
influences. Let me mention them briefly.
First of all globalization has weakened American and developed economies by
syphoning off investment and, more importantly, jobs to emerging nations at
1/10th the wage cost. Take China, for example, Free market capitalism, in
other words, is working for China, it's working for Brazil, but it's not
working for America or Euroland.
Secondly and just briefly, free market capitalism depends on a balanced market
between labor and capital. And clearly we're reaching a point where
impoverished Main Street cannot afford to buy the goods that capitalism so
magnificently produces. So I think there's an exhaustion here in terms of
free market capitalism that has worked so well for 20 to 30 to 40, 50 years,
but now is reaching structural impediments that prevent, you know, strong
growth that we're used to.
KUDLOW: I want to come back to that towards the back end, Bill, but I just
want to narrow down for a moment. I want to drill down. According to the
reports, you are buying Treasuries. You're accumulating Treasuries. You have
a net positive exposure for the first time. Let me ask you, what if the
bond--the Treasury market has discounted a recession that doesn't happen? Are
you chasing the market? Is there a risk that the rate hikes that you foresaw
this year might still come to pass if the economy surprises on the upside?
Mr. GROSS: Well, that's possible. We read in the Fed minutes today of the
last meeting that the--that the two-year 0 percent or 25 basis point Fed funds
level is conditional, and we know that there are hawks, that there are doves,
and that should the economy recover to a 2 to 3 to 4 percent rate, that, you
know, perhaps inflation looms larger in terms of a threat. So anything is
possible. What I would say at the moment, though, is since the economy is
really moving closer to the zero level, since inflation probably will come
down gradually, you know, the Fed is at 0 percent for the next two years and
perhaps even longer than that, and that determines significantly the level of
Treasury rates in five-year space, 10-year space and even 30-year space.
KUDLOW: But, you know, it's interesting. We had Byron Wein on, a
distinguished investment guru on his own part. He predicted the S&P would
rally to 1400. OK? It's just over 1200 today, as you know, If that sort of
thing happened with better corporate profits, even consumer sentiment, which
tanked today but people are still buying washing machines and cars, retail
sales are holding up. If you had a big rally in stocks, the risk trade is
back on. That'll come out of Treasury bonds, and those could--that could
drive those bond rates back to 3 percent. You're buying bonds now. Are you
worried that there's a potential for whiplash?
Mr. GROSS: Well, I'm suggesting that the probability--that the high
probability is for interest rates to stay low for a long time. I mean, Byron
Wein basically is a a mean reversion cyclical type of--type of analyst. What
we're suggesting is that there are structural impediments to the US economy to
develop market economies that will prevent growth in the 3 to 4 percent
category.
Let me ask you, in terms of consumerism, in terms of the US consumer, if
unemployment stays at 9 percent plus and if wage gains--if real wage gains are
nonexistent, then were is the spending power coming from? It has to come from
the consumer as opposed to businesses. Businesses are waiting on the
consumer. The consumer is waiting on business. We have what we call a
liquidity trap. So what we're suggesting is not a reversion to the mean, not
a cyclical upthrust, but basically a structural impediment that produces
growth in the 0 to 2 percent category for a long time. Not just in the US,
but in Euroland, as well.
KUDLOW: All right. So let me--have you had any trouble with your fund--I
guess the Total Return Fund, because of the bond miss this year, rates went
down instead of up? Have people withdrawn from the fund? What are your
customers saying right now?
Mr. GROSS: We have a $245 billion customer base. You know, that customer
base is growing. We just got a billion dollar contribution from a large
corporation this week. There's been no lack of confidence. You know, to
suggest that a six to seven month timeframe for the PIMCO Total Return Fund,
which has produced results for the last 20, 30 or 35 years, is, you know, a
stretch of the imagination. We continue to produce fine results for our
clients.
KUDLOW: Oh, that's what everybody says. That's--everybody I talked to today
on this story said exactly what you said. Your record down through the years
has been superb.
Let me ask you this, are you still buying some corporate bonds and are you
still buying foreign bonds? You talked to me about that when you last
visited.
Mr. GROSS: Well, corporate bonds of the highest quality, yes. And that
would be A and AA-types of corporates, not high-yield bonds because they don't
do well, you know, if we near the recessionary level of 0 percent. In terms
of foreign bonds, let me just cite the comparison: a five-year Treasury in
the United States at 1 percent, actually little bit less; in Canada 1.7
percent; in Euroland 2.1 percent; in Mexico 5.4 percent; in Brazil 11 percent.
And these are countries, by the way, Larry, which have what we call clean or
dirty shirts. Mexico has half the debt of the United States. Brazil has half
the debt of the United States and has treasury reserves as opposed to
deficits. And so these are countries with higher yields and better balance
sheets.
KUDLOW: All right, last one. I'm going to come back to where you were on the
breakdown of free market capitalism, which is fair enough. I would
acknowledge that America's economy has been on the decline now for about 10
years. But I ask you, Bill, everybody is so profitable. Businesses are so
profitable, so much cash. Banks have more liquidity than they know what to do
with. Is it possible there's a buyer's strike, that there's a capital strike,
that the spending and taxing and regulatory threats out of Washington are
really the problem, not the free market capitalist system?
Mr. GROSS: Well, I'd have to say that that doesn't help. I mean, let's come
together on that point that regulation and too much of it--that taxation in
terms of the necessary reforms that probably lie ahead, you know, don't help
either in terms of the current economic environment. What I would say in
terms of corporate tax reform is, yes, let's reform taxes, let's reform
corporate taxes and let's reform individual taxes. But at the same token,
let's not lower them, because corporate taxes are 10 percent of total federal
revenues. They're at an all-time low, Larry. And to suggest that
corporations are the poor baby in this particular story, I think, is an
absurdity.
KUDLOW: All right. I'm going to leave that for the next discussion we have.
We have much more to discuss on corporate tax reform. But, Bill Gross, thank
you for your honesty. Thank you for your forthrightness.
Mr. GROSS: Thank you, Larry.
KUDLOW: And thanks for coming on tonight. I appreciate it.
Mr. GROSS: Yeah.
30 Ağustos 2011 Salı
Consumer Confidence Drops To 2-year Low
The market is lower in early trading, on the heels of some profit taking and a disappointing consumer confidence number. The S&P 500 has rallied more than 7% in the last five sessions, so traders who were buying last week's lows actually have some profits to take.
The market was down only slightly at the open, but the Consumer Confidence number came out much weaker than expected. Consumer Confidence Index for August fell to a 2-year low of 44.5, down sharply from July's level of 59.2. I tend to view consumer confidence as more of a coincident indicator as opposed to a leading indicator.
The other big news event today will be the release of the recent FOMC meeting minutes. Investors will be looking for hints about additional policy adjustments and what tools the Fed might use if it decides to become more accomodative with monetary policy.
Asian markets were higher overnight, except China which has lagged in recent days. Oil prices are higher near the $88 level; and gold is also higher around $1831.
The 10-year yield is lower today, falling back to 2.18%; and the VIX index fell below its 20-day average yesterday, and is hovering just below the 33 level currently.
Trading comment: The chart below shows the recent bottom for the SPX at the 1120 level. This level was tested several times, but ultimately held. The plunge in stocks was met with some extreme spikes in bearish sentiment. That, along with sharply oversold readings helped the market put in a short-term bottom. But that is different from a longer-term bottom.
Markets rarely make "V" bottoms, where they spike back up to their former highs after just one plunge lower. Far more often, markets have a retest of those lows at some point. If those lows hold the next time around, that can lead to a more sustainable bottom. And if they don't hold you can see the market trade to lower levels. That is why it is too early to call a bottom here. But it doesn't mean that the S&P can't keep rising until it hits more resistance. I could see the SPX working its way back up to 1250, and even that wouldn't necessarily change my intermediate-term outlook.
The market was down only slightly at the open, but the Consumer Confidence number came out much weaker than expected. Consumer Confidence Index for August fell to a 2-year low of 44.5, down sharply from July's level of 59.2. I tend to view consumer confidence as more of a coincident indicator as opposed to a leading indicator.
The other big news event today will be the release of the recent FOMC meeting minutes. Investors will be looking for hints about additional policy adjustments and what tools the Fed might use if it decides to become more accomodative with monetary policy.
Asian markets were higher overnight, except China which has lagged in recent days. Oil prices are higher near the $88 level; and gold is also higher around $1831.
The 10-year yield is lower today, falling back to 2.18%; and the VIX index fell below its 20-day average yesterday, and is hovering just below the 33 level currently.
Trading comment: The chart below shows the recent bottom for the SPX at the 1120 level. This level was tested several times, but ultimately held. The plunge in stocks was met with some extreme spikes in bearish sentiment. That, along with sharply oversold readings helped the market put in a short-term bottom. But that is different from a longer-term bottom.
Markets rarely make "V" bottoms, where they spike back up to their former highs after just one plunge lower. Far more often, markets have a retest of those lows at some point. If those lows hold the next time around, that can lead to a more sustainable bottom. And if they don't hold you can see the market trade to lower levels. That is why it is too early to call a bottom here. But it doesn't mean that the S&P can't keep rising until it hits more resistance. I could see the SPX working its way back up to 1250, and even that wouldn't necessarily change my intermediate-term outlook.
29 Ağustos 2011 Pazartesi
Irene’s Broken Windows
Get ready for a bunch of demand-side economists to tell you that the post-Hurricane Irene rebuilding phase is actually a good thing for future economic growth. But don’t believe it.
Who has it right?
Joshua Shapiro, chief U.S. economist at MFR, Inc., delivered my favorite quote on the subject to the New York Times: “If you’re in the middle of recession, you just wander around blowing up buildings, and that would be your path to prosperity. And clearly that’s not the case. It’s not the case with a natural disaster either.”
Echoing this thought, Ian Shepherdson, the chief U.S. economist at High Frequency Economics, bluntly noted on CNBC’s website that “no one is made better off by the destruction of their home or workplace.” He acknowledged the benefits of reconstruction work, but he dismissed the idea that somehow this is a net win for the economy.
It sounds to me like both of these gentlemen are recalling the parable of the broken window, introduced by French free-market philosopher Frederic Bastiat in an 1850 essay called “That Which Is Seen, and That Which Is Unseen.” While Bastiat agrees that repairing broken windows is a good thing, encouraging the glazier’s trade and income, he argues that it is quite different from the idea that breaking windows is a good thing, in that it would cause money to circulate and encourage industry in general.
Why? Because a shopkeeper who spends money to fix broken windows cannot spend or invest that money on new ventures.
“It’s not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library,” wrote Bastiat. “In short, he would have employed his six francs in some way, which this accident has prevented.”
In other words, the business people who are spending to fix the damage of Hurricane Irene are not spending or investing that money on brand-new ventures or start-ups, or on ordinary goods and services. That’s the real economics of Hurricane Irene.
There was a lot of damage incurred along 1,100 miles of U.S. coastline. Tragically, 28 deaths have been reported so far. There were toppled trees, power-line disruptions, and flooding on damaged roads. Homes, commercial buildings, and factories all stopped for at least a couple of days. In some sense, the human distress has been even greater than the economic distress.
On the other hand, lost sales, foregone consumer spending, and temporary stoppages of production and employment will all be recouped in a relatively short period of time. Mark Zandi of Moody’s Analytics suggests that the economic toll will be in the billions, but not the tens of billions. (Remember, total U.S. GDP is roughly $15 trillion.) So there’s no black-swan event here that will throw our fragile economy into a double-dip recession.
Yes, the economic blow from Irene is noticeable, but it’s temporary. In fact, what makes this economic setback even less worrisome is that it occurred over a weekend. You really didn’t even lose two days of economic activity.
Restaurants, retailers, baseball games, and Broadway shows all shut down, but only for a short bit. And actually, there was a lot of consumer buying in the days leading up to Irene. People went to Home Depot and Lowe’s to find stuff to board up their windows. They went to Costco for food. And they went to Wal-Mart and Dollar General for all sorts of things.
When the final tally is in, Irene may or may not qualify as a top-ten hurricane. But the history of such disasters is that the national economy rebuilds and snaps back shortly thereafter. Nonetheless, the economic rebuilding essentially gets you back to where you were before the storm. Unfortunately, there is virtually no net new investment from all of this.
That said, if President Obama tries to use Hurricane Irene as an excuse to pour tens of billions of new infrastructure dollars into the economy, he’s barking up the wrong tree.
For just as Bastiat’s seen-and-unseen analysis holds for the shopkeeper repairing his window, it also holds for the impact of massive government spending on the whole economy. It’s a huge mistake, and a consequence of our fiscal profligacy, when private money is not spent on new investment because funds are absorbed by big-government borrowing.
If we are to restore strong economic growth and job creation we require measures like pro-growth tax reform or regulatory rollback and repeal. In this sense the new House Republican plan just released by Majority Leader Eric Cantor to repeal job-destroying regulations -- especially on labor and the environment -- makes a lot more sense than throwing money at FEMA for new infrastructure banks.
Breaking fiscal windows is just as ineffective as breaking the shopkeeper’s pane of glass.
THE BEAR MARKET RALLY HAS BEGUN
I've been warning bears for a couple of weeks that the market was due for an aggressive bear market rally. That rally has clearly begun.
I have often referenced the Rubber Band theory in my nightly reports. For those not in the know the rubber band theory is nothing more than the tendency for any market to regress to the mean. And the further a market is stretched away from the mean the more violent the snap back tends to be once the pressure is released.
In the case of a rubber band, the further you stretch it in one direction, the harder it snaps forward once you release it. Simple action and reaction.
Markets are really no different than a rubber band. The further you stretch the stock market the more violent and persistent the snap back tends to be once the turn occurs. At the recent yearly cycle low on August 9 the stock market had stretched to ridiculous levels, both sentiment wise and technically. This should generate an extremely convincing bear market rally.
A normal bear market rally will typically last from 4 to 10 weeks. (They have to last long enough to reverse extreme sentiment levels.) Generally speaking that takes a minimum of 4 weeks, and 6-8 weeks is about average.
A bear market rally out of a yearly cycle low (other than a four year cycle low, the move into a yearly cycle low tends to be the most damaging decline in the stock market. This year was certainly no exception) will quite often tag, and occasionally penetrate the declining 200 day moving average. I tend to think that will be the case this time also. My best guess is the market will rally up to the 200 day moving average, then dip slightly into the next daily cycle low around the end of September. That should be followed by an extreme left translated daily cycle that tops slightly above the 200 day moving average (I guessed at about 1300 on the chart below) and then moves down into the next intermediate bottom due in late November or very early December. At which point the market will make a lower low, confirming a new cyclical bear market.
2. A move below a previous intermediate bottom.
When the S&P broke below the March low it triggered a new pattern of lower lows and lower highs.
3. The 50 day moving average dropping below the 200 day moving average, and the 200 day moving average turning down.
Investors need to be prepared. This is going to be a very, very convincing rally. The tendency is going to be to buy into the media hype, that this was nothing more than a severe correction in an ongoing bull market.
This was not a correction. This was the first leg down in a new cyclical bear market. And like all bear markets it will be subject to violent countertrend rallies that toy with traders emotions, and ultimately cause investors to ride the bear all the way to the bottom.
I have often referenced the Rubber Band theory in my nightly reports. For those not in the know the rubber band theory is nothing more than the tendency for any market to regress to the mean. And the further a market is stretched away from the mean the more violent the snap back tends to be once the pressure is released.
In the case of a rubber band, the further you stretch it in one direction, the harder it snaps forward once you release it. Simple action and reaction.
Markets are really no different than a rubber band. The further you stretch the stock market the more violent and persistent the snap back tends to be once the turn occurs. At the recent yearly cycle low on August 9 the stock market had stretched to ridiculous levels, both sentiment wise and technically. This should generate an extremely convincing bear market rally.
A bear market rally out of a yearly cycle low (other than a four year cycle low, the move into a yearly cycle low tends to be the most damaging decline in the stock market. This year was certainly no exception) will quite often tag, and occasionally penetrate the declining 200 day moving average. I tend to think that will be the case this time also. My best guess is the market will rally up to the 200 day moving average, then dip slightly into the next daily cycle low around the end of September. That should be followed by an extreme left translated daily cycle that tops slightly above the 200 day moving average (I guessed at about 1300 on the chart below) and then moves down into the next intermediate bottom due in late November or very early December. At which point the market will make a lower low, confirming a new cyclical bear market.
Actually the market has already met all three confirmations that a new cyclical bear market has begun.
1. Dow theory sell signal.
When the industrials and the transports both broke below the March low a Dow theory sell signal was triggered.
2. A move below a previous intermediate bottom.
When the S&P broke below the March low it triggered a new pattern of lower lows and lower highs.
3. The 50 day moving average dropping below the 200 day moving average, and the 200 day moving average turning down.
Investors need to be prepared. This is going to be a very, very convincing rally. The tendency is going to be to buy into the media hype, that this was nothing more than a severe correction in an ongoing bull market.
This was not a correction. This was the first leg down in a new cyclical bear market. And like all bear markets it will be subject to violent countertrend rallies that toy with traders emotions, and ultimately cause investors to ride the bear all the way to the bottom.
Monday Morning Musings
The markets are getting a very nice bounce on the heels of the 5% gain last week, the best weekly performance for the market in eight weeks.
Asian markets were higher overnight, except for China which was lower. Europe markets were also higher this morning after two Greek banks decided to merge.
Also, the damages from Hurricane Irene at first glance appear to be less that initially feared, and that is helping boost financials stocks, especially insurance stocks. The positive boost to financials has helped the S&P 500 touch the 1200 level.
The dollar is flattish currently, and commodities are mixed. Oil prices are higher near $87, but gold prices have moved from positive territory back into the red, currently trading around $1793.
The 10-year yield is getting a bounce back to 2.26%. And the VIX is down -6% right now to 33.3. That's below its 20-day average, but still above the psychological 30 level that I would like to see breached.
Trading comment: There continues to be some skepticism about this rally, as evidenced by the elevated VIX readings. Other sentiment indicators I looked at over the weekend continue to show extreme bearish readings. This could play into the hands of the bulls, as the unwinding of some of these bearish bets could keep the market higher. With NYC still a mess today from the hurricane, I expect volume levels to be light. But overall the action from last week was constructive, and I think this bounce could continue to carry higher in the near-term.
Asian markets were higher overnight, except for China which was lower. Europe markets were also higher this morning after two Greek banks decided to merge.
Also, the damages from Hurricane Irene at first glance appear to be less that initially feared, and that is helping boost financials stocks, especially insurance stocks. The positive boost to financials has helped the S&P 500 touch the 1200 level.
The dollar is flattish currently, and commodities are mixed. Oil prices are higher near $87, but gold prices have moved from positive territory back into the red, currently trading around $1793.
The 10-year yield is getting a bounce back to 2.26%. And the VIX is down -6% right now to 33.3. That's below its 20-day average, but still above the psychological 30 level that I would like to see breached.
Trading comment: There continues to be some skepticism about this rally, as evidenced by the elevated VIX readings. Other sentiment indicators I looked at over the weekend continue to show extreme bearish readings. This could play into the hands of the bulls, as the unwinding of some of these bearish bets could keep the market higher. With NYC still a mess today from the hurricane, I expect volume levels to be light. But overall the action from last week was constructive, and I think this bounce could continue to carry higher in the near-term.
26 Ağustos 2011 Cuma
Don't Look For Bernanke To Save Us
The market opened under some selling pressure this morning after yesterday's selloff and a weaker than expected GDP report this morning.
Q2 GDP growth was revised downward to 1.0% from an earlier estimate of 1.3%. So far the first two quarters of 2011 are showing pretty weak growth. I sure hope we see a bit of a pickup in the second half.
But the big news event of the day was Bernanke's speech at Jackson Hole. For the life of me, I don't think anyone actually thought he was going to surprise the world with an announcement of new QE3 measures. More likely, he would reiterate that the Fed will remain accomodative, and that they have additional tools to employ should conditions continue to deteriorate.
True to form, that's about exactly the message he gave. Initially, the market swooned following his comments. But then I think rationality set it, and the market has since rallied all the way back to positive territory. There is still a lot of time left in today's session, so we will have to see how we close. But so far this is pretty constructive action.
Investors should realize that the Fed has remained extremely accomodative, and eventually this should begin to kick in. Mortgage rates have come down a lot, and there are rumors that the govt. might sponsor some sort of national refi program. Getting a bottom in the housing market would help a lot. Also, Obama is supposed to announce some new jobs program soon. That would help as well, as lowering the unemployment rate would improve consumer sentiment. But for now the focus is likely to remain on the problems in Europe.
Asian markets were mixed overnight; the dollar is lower today; oil prices are flattish near $85.35, and gold prices are higher at $1778.
The 10-year yield is lower to 2.19%; and the VIX, which has remained stubbornly high, is down 9% currently to 36. It was never able to get below that 20-day average support level I talked about earlier this week. Hopefully next week it can close below 35 and work its way back down to 30. That would be the first signal that traders expect this heightened volatility to diminish somewhat.
Trading comment: The S&P 500 has bounced back roughly 4% from last week's closing levels. Moreover, despite all of the choppiness the SPX has held above its recent lows around 1120. So for now it looks like that 1120 will hold as a successful floor, and the SPX could lift further from these levels. That doesn't mean we are out of the woods entirely, but that we might be able to rally to higher levels before we get some sort of retest of the recent lows. If we do see a further rally, I will likely continue to employ the same strategy of lightening up on lagging stocks, and staying defensive with our index hedges.
Q2 GDP growth was revised downward to 1.0% from an earlier estimate of 1.3%. So far the first two quarters of 2011 are showing pretty weak growth. I sure hope we see a bit of a pickup in the second half.
But the big news event of the day was Bernanke's speech at Jackson Hole. For the life of me, I don't think anyone actually thought he was going to surprise the world with an announcement of new QE3 measures. More likely, he would reiterate that the Fed will remain accomodative, and that they have additional tools to employ should conditions continue to deteriorate.
True to form, that's about exactly the message he gave. Initially, the market swooned following his comments. But then I think rationality set it, and the market has since rallied all the way back to positive territory. There is still a lot of time left in today's session, so we will have to see how we close. But so far this is pretty constructive action.
Investors should realize that the Fed has remained extremely accomodative, and eventually this should begin to kick in. Mortgage rates have come down a lot, and there are rumors that the govt. might sponsor some sort of national refi program. Getting a bottom in the housing market would help a lot. Also, Obama is supposed to announce some new jobs program soon. That would help as well, as lowering the unemployment rate would improve consumer sentiment. But for now the focus is likely to remain on the problems in Europe.
Asian markets were mixed overnight; the dollar is lower today; oil prices are flattish near $85.35, and gold prices are higher at $1778.
The 10-year yield is lower to 2.19%; and the VIX, which has remained stubbornly high, is down 9% currently to 36. It was never able to get below that 20-day average support level I talked about earlier this week. Hopefully next week it can close below 35 and work its way back down to 30. That would be the first signal that traders expect this heightened volatility to diminish somewhat.
Trading comment: The S&P 500 has bounced back roughly 4% from last week's closing levels. Moreover, despite all of the choppiness the SPX has held above its recent lows around 1120. So for now it looks like that 1120 will hold as a successful floor, and the SPX could lift further from these levels. That doesn't mean we are out of the woods entirely, but that we might be able to rally to higher levels before we get some sort of retest of the recent lows. If we do see a further rally, I will likely continue to employ the same strategy of lightening up on lagging stocks, and staying defensive with our index hedges.
25 Ağustos 2011 Perşembe
Steve Jobs and Scottie Pippen
I am sad to see Steve Jobs leave the CEO position at Apple (AAPL), although this was not unexpected. Jobs has been on medical leave since January, and has been battling cancer for some time now. I wish him all the best, and hope he will continue to contribute as Chairman.
As to the questions of whether Tim Cook can step into the shoes of Steve Jobs, I think that is an impossibility. There are few executives on earth like Steve Jobs. He has been both a brilliant visionary, a tech artist, and a superb engineer. His success has been so superb that anything will pale in comparison. Jeffrey Immelt was a fantastic executive at GE, but after taking over for Jack Welch it was nearly impossible to live up to expectations.
Sure Tim Cook has been well groomed for years. Jobs knew this day would come, so he had a responsibility to both groom Cook and prepare the company for this day. But Tim Cook is more like Scottie Pippen when he played with Michael Jordan. Pippen was a fabulous player with the Bulls, and shared many championships. He was capable of executing fantastically in that offense, but that was alongside Jordan. Take Jordan out of the picture, and Pippen couldn't carry a team and elevate them to the same level.
So I think it is unfair to keep asking if Cook can replicate Jobs' success. Apple's product road map is pretty well laid out for the next couple of years. I think Cook will do a fine job executing on these plans and continuing to grow the company nicely. It's the longer-term picture that I'm worried about. It's the vision that Jobs possessed. It's the maniacal attention to detail; the perfectionist attitude; and the willingness to navigate unchartered waters.
I trimmed a few shares of AAPL today, but it remains one of our largest holdings. I still think the stock is undervalued relative to its earnings power and growth rate. So I think it is too cheap to discard. I plan on keeping it as a core holding, and trading around it from time to time. But to act like nothing has changed at the company is being a bit naive.
long AAPL
As to the questions of whether Tim Cook can step into the shoes of Steve Jobs, I think that is an impossibility. There are few executives on earth like Steve Jobs. He has been both a brilliant visionary, a tech artist, and a superb engineer. His success has been so superb that anything will pale in comparison. Jeffrey Immelt was a fantastic executive at GE, but after taking over for Jack Welch it was nearly impossible to live up to expectations.
Sure Tim Cook has been well groomed for years. Jobs knew this day would come, so he had a responsibility to both groom Cook and prepare the company for this day. But Tim Cook is more like Scottie Pippen when he played with Michael Jordan. Pippen was a fabulous player with the Bulls, and shared many championships. He was capable of executing fantastically in that offense, but that was alongside Jordan. Take Jordan out of the picture, and Pippen couldn't carry a team and elevate them to the same level.
So I think it is unfair to keep asking if Cook can replicate Jobs' success. Apple's product road map is pretty well laid out for the next couple of years. I think Cook will do a fine job executing on these plans and continuing to grow the company nicely. It's the longer-term picture that I'm worried about. It's the vision that Jobs possessed. It's the maniacal attention to detail; the perfectionist attitude; and the willingness to navigate unchartered waters.
I trimmed a few shares of AAPL today, but it remains one of our largest holdings. I still think the stock is undervalued relative to its earnings power and growth rate. So I think it is too cheap to discard. I plan on keeping it as a core holding, and trading around it from time to time. But to act like nothing has changed at the company is being a bit naive.
long AAPL
24 Ağustos 2011 Çarşamba
North By Northwest
I'm now in Redmond, central Oregon, at my friend Timo’s house.
Portland
Olympic Pantheon
My new friend, Corwin, from Atlanta, invited me on a pack trip to the Olympic Peninsula in Washington, and I didn’t hesitate to say yes. My friend Denise knew Corwin, and she recommended we hook up. Corwin is about as pleasant, easy-going and thoughtful of a person as you’d want to travel with. He’s so stable you can’t get him excited (which is funny, because he got a bout of hiccups for 3 days, and I could in no way scare him to cure them).
I decided I didn’t want to carry a rocket stove or pot, so I toasted a bunch of rice, buckwheat and tapioca, threw 'em together with a bit of olive oil and salt, to munch as my main staple on the trip. We thought we’d start with a simple loop trail in the Quinault rain forest, then explore other areas later. The trail started way easy, but as we reached higher elevations, we ran into fields of deep snow and lost the trail – not at all what we’d expected. It made for a gnarly and difficult hike and us bantering back and forth on which direction to take. But that’s also what made it remarkably fun. And we got through, of course, feeling good about it. Easy things aren't memorable.
We then decided to go to the coast, near the Hoh reservation, and do a little hike there. That ended up more gnarly than we’d suspected, too, sludging through knee-deep mud in the coastal rain forest. We ate berries galore, lots of wild peas, and I cooked and ate quite a few slugs (they’re okay if you clean out the guts and toast them well). We also ate toasted seaweed of various sorts. Funny, the whole rain forest trip had nary a drop of rain, except a brief shower one morning.
 |
| Chief Seattle Drive 'em from their lands... that's okay cuz we name cities & stuff after 'em |
Back in the Seattle Again...
Corwin then took me to Seattle to stay with his friend Oscar at Sherwood House, a large community house with lots of pleasant people. We hung there maybe a week, exploring Seattle and doing a lot of specialty :-) shopping in the backs of stores – finding amazing quantities of food, most of which the Sherwood House gladly accepted. Corwin’s girlfriend, Beth, from Atlanta, later came to town and hung with us for a while.
...Or Again to Oregon
When Beth left, Corwin's friend Kathryn also came to town, and the three of us went back to Portland together, with gobs of goodies to share with Food Not Bombs. I camped in the Ninja house garden again. I read through Alan Watts’ The Way of Zen while there, one of the most profound things I’ve ever read. Not wanting to wear out my welcome at Ninja, and wanting to come here to see Timo and his daughter, Logan, I felt it time to move on.
I got a ride again with Corwin and Beth, who happened to be coming this way last week. So here I am. It’s been 3 years, and Logan is already a young woman, going into high school this Fall.
A couple days ago Timo took me to a weekly Spanish-speaking group he attends, and later to a Lakota sweat lodge near Bend – a very deep and blessed experience for me.
Now I’m reading Harish Dhillon’s The First Sikh Spiritual Master, about Guru Nanak (who lived at the time of Columbus and Martin Luther).I’m not sure how long before I start hitching back to Utah, inshallah.
…how will all these things make our journey more comfortable?
We cannot clutter up our lives, not now or ever.
We must travel light, live simply, and not worry about tomorrow,
secure in the knowledge that God will always provide—
perhaps through the generosity of people like the good Uppals.
--Guru Nanak (p. 70, The First Sikh Spiritual Master)
Sitting quietly, doing nothing,
Spring comes,
And the grass grows by itself.
--Zen Sage Zenrin Kushu
Let the earth bring forth grass
--Elohim (Genesis 1:11)
Ye are Elohim
--Jesus (John 10:34)
Gold Prices Ease From Record Highs
The market was nicely higher in early trading, but it looks like traders are selling into the lift, and the rally is fading as of this post.
Financials are leading the early action, after Bank of America (BAC) was upped to a Strong Buy at a tier one firm and the stock is up more than 8%. Other large banks are higher as well.
But utilities are also strong this morning, and that group is often considered very defensive. So it's not the usual group of growth stocks leading the market this morning, although many of them enjoyed large percentage moves yesterday.
Gold prices have sold off sharply from their recent record highs. After touching $1900 a few days ago, gold prices are down another $75 today back near $1780. People are now asking whether the run in gold is over. My take is that things just got overheated in gold, and now it is going to have to go through a consolidation period. So just be patient, and let gold build another base. There will be plenty of time to add to positions later on.
In economic news, the July durable goods report rose a much stronger than expected 4.0%. Moreover, orders for the prior month were revised higher. This probably lessens the calls for an immediate recession, but let's see how the GDP data looks later this week.
Asian markets were lower overnight after Japan had its debt rating downgraded one notch by Moody's. Japan has the biggest debt-to-GDP ratio, and the slower growth in the country isn't being helped by the recent strong rise in the Yen.
The dollar is flattish today, and oil and gold are once again mixed. Gold is lower, while oil prices are up a bit near $86.25.
The 10-year yield is seeing a nice little bounce near 2.20%. The VIX is down only slightly to 36.0. It is testing its 20-day support, a level I would like to see it break below to signal the market could rally more.
Trading comment: Of course, how the week ends really hinges on the combined GDP report Friday couple with Bernanke's comments at Jackson Hole. I have said I think expectations are running too high for him to pull another rabbit out of the hat. I think he will say that the Fed will remain extremely accomodative, but I doubt he will explicitly unveil a QE3 program. Hopefully investors realize this and stocks won't selloff after his speech.
The SPX held its recent lows at 1120 this week, and could simply be building a short-term base from which to move higher over the next few weeks. What happened to August being a slow month where portfolio managers could go on vacation?!??
long BAC
Financials are leading the early action, after Bank of America (BAC) was upped to a Strong Buy at a tier one firm and the stock is up more than 8%. Other large banks are higher as well.
But utilities are also strong this morning, and that group is often considered very defensive. So it's not the usual group of growth stocks leading the market this morning, although many of them enjoyed large percentage moves yesterday.
Gold prices have sold off sharply from their recent record highs. After touching $1900 a few days ago, gold prices are down another $75 today back near $1780. People are now asking whether the run in gold is over. My take is that things just got overheated in gold, and now it is going to have to go through a consolidation period. So just be patient, and let gold build another base. There will be plenty of time to add to positions later on.
In economic news, the July durable goods report rose a much stronger than expected 4.0%. Moreover, orders for the prior month were revised higher. This probably lessens the calls for an immediate recession, but let's see how the GDP data looks later this week.
Asian markets were lower overnight after Japan had its debt rating downgraded one notch by Moody's. Japan has the biggest debt-to-GDP ratio, and the slower growth in the country isn't being helped by the recent strong rise in the Yen.
The dollar is flattish today, and oil and gold are once again mixed. Gold is lower, while oil prices are up a bit near $86.25.
The 10-year yield is seeing a nice little bounce near 2.20%. The VIX is down only slightly to 36.0. It is testing its 20-day support, a level I would like to see it break below to signal the market could rally more.
Trading comment: Of course, how the week ends really hinges on the combined GDP report Friday couple with Bernanke's comments at Jackson Hole. I have said I think expectations are running too high for him to pull another rabbit out of the hat. I think he will say that the Fed will remain extremely accomodative, but I doubt he will explicitly unveil a QE3 program. Hopefully investors realize this and stocks won't selloff after his speech.
The SPX held its recent lows at 1120 this week, and could simply be building a short-term base from which to move higher over the next few weeks. What happened to August being a slow month where portfolio managers could go on vacation?!??
long BAC
23 Ağustos 2011 Salı
Can Stocks Add To This Bounce?
The market has enjoyed a nice rally today, and the Nasdaq is up more than 3% heading into the last hour of trade. The bullish sentiment carried over from both Asia last night, and Europe early this morning. Both regions saw equity market rallies from oversold levels.
The dollar is lower today, but commodities are mixed. Oil is rallying back near $86, and energy stocks are leading the action so far today. Gold prices are finally seeing a down day, with the yellow metal off more than $50 today near $1837.
Financials are lagging the action, as BofA remains under pressure, and Goldman (GS) can't seem to rally today either. Volume in GS is very high again today.
If short-covering continues, there could be continued buying pressure into the close. The real question is whether or not this turns out to be a one-day wonder, or if this rally can carry the markets higher.
The 10-year yield hasn't rallied much, hovering at a still low level of 2.13%. And the VIX is down 12% currently, falling below the 40 level to 37.18 as of now. That's a good start. I would like to see it break its rising 20-day average which will come into play around 33.50, but bulls would really like to see it below 30 again.
Trading comment: While it "feels" good today, I am still not convinced the bottom is in. I hope I am wrong, but my concern is that expectations are too high going into the Jackson Hole meeting on Friday. If Bernanke doesn't come out with something big, I think the markets could sell off again. As such, I am using today's strength to continue to lighten up a little on economically sensitive stocks and add to our index hedges.
The dollar is lower today, but commodities are mixed. Oil is rallying back near $86, and energy stocks are leading the action so far today. Gold prices are finally seeing a down day, with the yellow metal off more than $50 today near $1837.
Financials are lagging the action, as BofA remains under pressure, and Goldman (GS) can't seem to rally today either. Volume in GS is very high again today.
If short-covering continues, there could be continued buying pressure into the close. The real question is whether or not this turns out to be a one-day wonder, or if this rally can carry the markets higher.
The 10-year yield hasn't rallied much, hovering at a still low level of 2.13%. And the VIX is down 12% currently, falling below the 40 level to 37.18 as of now. That's a good start. I would like to see it break its rising 20-day average which will come into play around 33.50, but bulls would really like to see it below 30 again.
Trading comment: While it "feels" good today, I am still not convinced the bottom is in. I hope I am wrong, but my concern is that expectations are too high going into the Jackson Hole meeting on Friday. If Bernanke doesn't come out with something big, I think the markets could sell off again. As such, I am using today's strength to continue to lighten up a little on economically sensitive stocks and add to our index hedges.
22 Ağustos 2011 Pazartesi
DOW: GOLD RATIO & THE SECULAR BEAR MARKET
As I have been warning investors for many months, stocks have now entered stage III of the secular bear market. Gold on the other hand is now in the final parabolic phase of a 2 1/2 year C wave advance.
My best guess was that we would see a Dow:gold ratio of between 5-6 before this C wave ended. The ratio was at 5.71 as of today. For reasons explained in the nightly reports I think we may still have a little further to go on the downside for stocks and a little further upside in gold. So it's entirely possible that we could see a Dow gold ratio of 1:5 before the trends reverse.
However the low risk, large potential trade is now in the stock market, not playing chicken with the gold parabola (also explained in the nightly newsletter).
Cyclically the stock market is now in the middle of the timing band for an intermediate bottom. Presumably a sharp bear market rally in stocks will trigger a regression to the mean, profit-taking event in the precious metals market (the D-wave).
D-Wave's almost always test, and sometimes marginally penetrate the 200 day moving average. I've illustrated in the chart above a rough guess as to where I expect the countertrend rally in stocks and the D-Wave correction in gold to retrace.
Keep in mind that the fundamentals for gold have not changed. A D-Wave is simply a profit-taking event triggered by an unsustainable parabolic rally. It has nothing to do with fundamentals. Once the D-Wave has run its course gold will enter a sharp snapback rally (the A-wave), after which it should consolidate for the remainder of the bear market in stocks.
Stocks on the other hand, after what should be a very convincing bear market rally, will roll over and continue down into a final four year cycle low, probably in the late summer or early fall of 2012.
Depending on whether or not the Fed tries to fight the cleansing process stocks should either test the March 09 lows, or if Bernanke tries to stop the bear market with another round of quantitative easing, we could see the March 09 lows breached.
Either way I expect that 2012 will go down as one of the worst years in human history. Certainly in the same category as 1932 if not worse.
My best guess was that we would see a Dow:gold ratio of between 5-6 before this C wave ended. The ratio was at 5.71 as of today. For reasons explained in the nightly reports I think we may still have a little further to go on the downside for stocks and a little further upside in gold. So it's entirely possible that we could see a Dow gold ratio of 1:5 before the trends reverse.
However the low risk, large potential trade is now in the stock market, not playing chicken with the gold parabola (also explained in the nightly newsletter).
Cyclically the stock market is now in the middle of the timing band for an intermediate bottom. Presumably a sharp bear market rally in stocks will trigger a regression to the mean, profit-taking event in the precious metals market (the D-wave).
D-Wave's almost always test, and sometimes marginally penetrate the 200 day moving average. I've illustrated in the chart above a rough guess as to where I expect the countertrend rally in stocks and the D-Wave correction in gold to retrace.
Keep in mind that the fundamentals for gold have not changed. A D-Wave is simply a profit-taking event triggered by an unsustainable parabolic rally. It has nothing to do with fundamentals. Once the D-Wave has run its course gold will enter a sharp snapback rally (the A-wave), after which it should consolidate for the remainder of the bear market in stocks.
Stocks on the other hand, after what should be a very convincing bear market rally, will roll over and continue down into a final four year cycle low, probably in the late summer or early fall of 2012.
Depending on whether or not the Fed tries to fight the cleansing process stocks should either test the March 09 lows, or if Bernanke tries to stop the bear market with another round of quantitative easing, we could see the March 09 lows breached.
Either way I expect that 2012 will go down as one of the worst years in human history. Certainly in the same category as 1932 if not worse.
Monday Morning Musings
The market is getting a bounce this morning on the heels of no bad news over the weekend, and a nice rally in European markets before the open.
Libyan rebels have taken over Libya, and the energy sector is rallying on the news. The thinking behind the rally is that oil will once again start flowing from Libya, and that lots of oil services will be needed to repair the oil fields and maximize production. Gas prices are slightly lower today on the perceived addition to supply this would create.
Asian markets were mixed overnight. Here in the U.S., there isn't a whole lot in the way of economic data or big corporate news to move the market. You know I don't like a market that opens too strong, as that leaves it vulnerable to late-day selling. I prefer a market that opens weak and strengthens into the close. So we will have to see how the day shapes up.
The dollar is up slightly vs. most other currencies, but that isn't hurting oil or gold. Oil prices are up over $83, while gold prices have rallied yet again, and are now above $1875.
The 10-year is getting a small bounce finally, but only back to 2.12% so far. And the VIX had broken below the 40 level earlier today, but it has since bounced higher and is closer to 41.20 right now. I would like to see it get back near 30 for starters, as these levels indicate traders expect heightened volatility to continue.
Trading comment: No big news yet, and the weak action at the close last Friday validates our near-term strategy. We continue to focus on playing defense here, using rallies to exit lagging positions and decreasing our overall equity allocation. Areas where we are adding are the high yielding plays like MLPs, utilities, and select REITs. Preservation of capital.
Libyan rebels have taken over Libya, and the energy sector is rallying on the news. The thinking behind the rally is that oil will once again start flowing from Libya, and that lots of oil services will be needed to repair the oil fields and maximize production. Gas prices are slightly lower today on the perceived addition to supply this would create.
Asian markets were mixed overnight. Here in the U.S., there isn't a whole lot in the way of economic data or big corporate news to move the market. You know I don't like a market that opens too strong, as that leaves it vulnerable to late-day selling. I prefer a market that opens weak and strengthens into the close. So we will have to see how the day shapes up.
The dollar is up slightly vs. most other currencies, but that isn't hurting oil or gold. Oil prices are up over $83, while gold prices have rallied yet again, and are now above $1875.
The 10-year is getting a small bounce finally, but only back to 2.12% so far. And the VIX had broken below the 40 level earlier today, but it has since bounced higher and is closer to 41.20 right now. I would like to see it get back near 30 for starters, as these levels indicate traders expect heightened volatility to continue.
Trading comment: No big news yet, and the weak action at the close last Friday validates our near-term strategy. We continue to focus on playing defense here, using rallies to exit lagging positions and decreasing our overall equity allocation. Areas where we are adding are the high yielding plays like MLPs, utilities, and select REITs. Preservation of capital.
19 Ağustos 2011 Cuma
TGIF
The markets opened lower this morning, following yesterday's sharp selloff in the US, which carried over into weakness in Asian markets and in Europe this morning.
But the selling dried up in the first hour of trading, and as of this post the markets are climbing back into positive territory on the day. Of course, with the VIX this high, we know we can expect a lot of intraday volatility. So nothing really matters except how we close on the day.
The concerns in Europe continue to surround sovereign debt, whether Greece can meets its fiscal debt budget, and an overall global economic slowdown.
In corporate news, HPQ reported disappointing results and its stock is getting whacked. This is weighing on the Dow Jones average. Salesforce.com (CRM) reported strong results and its stock is rallying.
The dollar is lower today, which is helping commodities. Oil prices are higher near $82.70, and gold prices have surged to new record highs above $1850.
The 10-year yield continues to languish around 2.08%; and the VIX has been bouncing around, but is currently 2% lower near 41.80, an extremely high level following yesterday's surge higher.
Trading comment: No change to our near-term strategy. If the market is trying to put in a trading bottom, it will be a process and not a one-day event. So we are still using bounces to lighten up on our equity exposure, and staying defensive by adding to index hedges. Preservation of capital remains the best course during a market downtrend.
Have a nice weekend, be safe, and rest up.
But the selling dried up in the first hour of trading, and as of this post the markets are climbing back into positive territory on the day. Of course, with the VIX this high, we know we can expect a lot of intraday volatility. So nothing really matters except how we close on the day.
The concerns in Europe continue to surround sovereign debt, whether Greece can meets its fiscal debt budget, and an overall global economic slowdown.
In corporate news, HPQ reported disappointing results and its stock is getting whacked. This is weighing on the Dow Jones average. Salesforce.com (CRM) reported strong results and its stock is rallying.
The dollar is lower today, which is helping commodities. Oil prices are higher near $82.70, and gold prices have surged to new record highs above $1850.
The 10-year yield continues to languish around 2.08%; and the VIX has been bouncing around, but is currently 2% lower near 41.80, an extremely high level following yesterday's surge higher.
Trading comment: No change to our near-term strategy. If the market is trying to put in a trading bottom, it will be a process and not a one-day event. So we are still using bounces to lighten up on our equity exposure, and staying defensive by adding to index hedges. Preservation of capital remains the best course during a market downtrend.
Have a nice weekend, be safe, and rest up.
An Interview with Richard Fisher
Richard Fisher, Dallas Fed president, explains his dissent on two more years of a zero interest rate target. He believes the Fed has created enough liquidity, but it's tax and regulatory barriers that have blocked growth and job creation. He also responds to GOP attacks on the Fed. You're looking at a future Treasury secretary here.
LARRY KUDLOW, host: Welcome back to this special edition of THE KUDLOW REPORT. We're continuing our discussion of today's stock market route, this time from the perspective of the Federal Reserve. We are honored to have a very special guest joining us this evening. Here now for an exclusive CNBC interview Richard Fisher. He's president and CEO of the Federal Reserve Bank of Dallas. Richard, welcome. You picked a hell of a day.
Mr. RICHARD FISHER: Well, wait, wait, wait. Not only am I president of the Federal Reserve Bank of Dallas, but I've been a friend of Larry Kudlow's for over 30 years, since we were embryos.
KUDLOW: Yes.
Mr. FISHER: So we started out as babies, of course.
KUDLOW: Thank you for that. I appreciate it. All right, Richard, let me just get your general impressions. Today was another plunge in stocks. We're in the throws of a 16 percent correction. What's your reaction to this kind of correction? What do you think is behind it?
Mr. FISHER: Larry, I'm a central banker. I thought your panel, by the way, earlier was very informative and very helpful. The message on that panel that don't panic. I'm a central banker. The Federal Reserve does not panic. I think we watch things carefully. You and I both know that markets are manic-depressive mechanisms. There are always some trip wires there, depending on what people are looking for. I'd just like to make two comments.
One is on Philly Fed Index. It's a wonderful index. You might wish to note to your viewers that its correlation with the PMI, that is the manufacturer's index, is .08. The two of the Fed indexes that have a good correlation are the Empire State, and then, even more than that, believe it or not, is the Dallas Fed's manufacturing survey. So I think there's a bit of an overreaction there.
And then secondly, one of the key points that was made is you have to think about the kind of dividends that are there. As I understand it, if the numbers I looked at correctly today, 60 percent of the S&P 500 is out yielding the Treasury 10-year. So I think your panel's advice don't panic is very good. Certainly we at the Central Bank have to look at things in a very calm, steady-handed way, and we'll continue to do so.
KUDLOW: Richard, I guess a two-edged question. Number one, your assessment of the outlook for recession. You had a bunch of banks today, Morgan Stanley earlier...
Mr. FISHER: Mm-hmm.
KUDLOW: ...and I'm told, as we're on the air day, Citi is downgrading its economy, its economic forecast, as is JPMorgan. Do you think--do you personally think we're going into recession?
Mr. FISHER: I've said from the very beginning this is will be a slow slog. I think it'll continue to be a slow slog. You pointed out some numbers earlier, Larry, in terms of the retail sales number, the production numbers. There have been setbacks to that in terms of various surveys. But I still think we have positive momentum. I'm not saying it is sufficient momentum to create the kind of jobs we want to create in America, but I do think we're going to have a positive third quarter. And my own personal feeling is, at least before the debt ceiling negotiations took place, I was looking for 3 percent or so in the third quarter. Still want to see that. I don't know much a retardant that comic opera was on people's willingness to commit capital to build into hire or to consume. But I'm still of the feeling that we're going to have positive momentum, Larry.
KUDLOW: Well that sort of leads to my next question. It's a puzzlement question. I've never seen so much cash and liquidity around.
Mr. FISHER: Boy, you're right.
KUDLOW: Banks have more money than they know what to do with. Corporations have more money than they know what to do with.
Mr. FISHER: Mm-hmm.
KUDLOW: And yet they all seem immobilized, not investing it, not taking risks, not hiring. Why is that?
Mr. FISHER: Mm-hmm. Well, my opinions are pretty well known there. It's not because of monetary policy. We have filled the gas tank. We got lots of fuel in there. Someone needs to step on the peddle and gauge the transmission mechanism, and I really do think the corporations have been discouraged from doing so. Obviously they're worried about weak demand. But remember, we're a consumption driven country. Unless you hire people, you can't have more consumption because you won't have more employment. And there's so much confusion on the regulatory side. There's such an uncertainty, Larry, in terms of what kind of tax regime, what kind of spending and what kind of subsidies are going to be added to, taken away, what the incentives will be that come out of this group of 12, or if they fail, will be laid down. That, to me, is not only depressing production, hiring, CAPEX and all the good things we need to see, it's also scaring the heck out of the consumer.
If you had watched that whole debacle of the debt ceiling negotiations, I would have turned to--as I did--to my wife, `Honey, we just can't afford to go on this vacation,' or, `We can't afford to buy that gizmo or that service.' I think it is a retardant. We have to get more certainty. Business operates under conditions of uncertainty, as you know. That's the way capitalism works. But extreme uncertainty freezes decision making, and I'm afraid that's the position we're in.
The Central Bank has reliquefied the system. That's what the Federal Reserve has done. The fiscal authorities, however, have to incent people, or at least help incent people, to have the confidence to go ahead and engage, expand the economy, in addition, of course, to seeing the whites of the eyes of a stronger recovery. But it can't occur unless businesses are incented to invest and hire more people.
KUDLOW: Well, in terms of Federal Reserve...
Mr. FISHER: I have very strong feelings about that.
KUDLOW: Yes, I can tell. And that, you know, I hear you on that. I get that. I hear you completely.
Mr. FISHER: Yeah. Good.
KUDLOW: But I want to--let me bring it back to the Federal Reserve. You did dissent from the last meeting.
Mr. FISHER: Yes, I did.
KUDLOW: The two year extension of the zero interest rate target. In Midland, Texas, yesterday--apparently, according to all the reports.
Mr. FISHER: Mm-hmm.
KUDLOW: You said that that zero interest rate target for two years reduces business incentives to grow and hire. Could you expand on that, because it sounds like you're suggesting the Federal Reserve's interest rate policy, the zero target is itself a disincentive, an obstacle, and may be adversely affecting the stock market?
Mr. FISHER: Well, this is my personal opinion, but there could be the unintended consequence that in addition to not knowing how you're going to be taxed or what kind of spending patterns are going to change, how it's going to affect not only your company, but your consumer base. Now you know that you can wait to borrow because the rates are going to be locked in at very low levels for a two year period. So my suggestion is and one of my arguments was that this might well further retard recovery and commitment. Again, you can't have recovery unless we have employment go up, unemployment go down. We will not have that unless people decide to expand. And right now there's almost no incentive to expand, and I was worried--this is my personal opinion--obviously I was in a minority and I respect the majority of my colleagues--that this would be a further retardant.
KUDLOW: Haven't all these zero interest--it's been several years now that we've had a zero interest rate. Hasn't it just benefited the speculators, the traders, the hedge funds? Not that they're bad people, but I just want to say, if you can borrow at zero and invest in anything with a higher yield, you win. At the same time, it's doing great damage to savers. I mean, isn't this a lopsided policy?
Mr. FISHER: Yep. Well, again, I've voiced concern about that. There's always a cost-benefit analysis takes place. Clearly one of the costs--and we're all aware of it--is the people that played by the rules, as they got older--like you and me, Larry--began to save more, shorten up on a yield curve, particularly those who don't have the benefit of sophisticated advice, have really been hammered here because it--they're getting low, in fact, negative real returns on their investment, and I think it's hurting the poor, and I think it's hurting those savers, and I think it's hurting the middle class that have played by the rules, socked away some money for retirement. And that's one of the prices we pay to try to reliquify the system.
I'm a little concerned as to how tolerant those people will be over the long term unless they see a pickup over time in the returns on their savings. But...
KUDLOW: Well, I think there's...
Mr. FISHER: It's very, very hard for retirees, and you and I agree on that front.
KUDLOW: I think there's a--I think there's a demoralization going on out there by savers and by businesses.
Mr. FISHER: Mm-hmm.
KUDLOW: But let me ask another question. I'm not going political on you, I just want a general sense. Out on the campaign trail, many if not most of the Republican candidates...
Mr. FISHER: I know what it is.
KUDLOW: I'm not going to name names, just because they're--because really many of them are attacking the Fed, sometimes in very harsh terms. I think what people want to know, not so much whether this guy is right or that lady is wrong or whatever. They want to know what kind of impact this has, these attacks on the Federal Reserve.
Mr. FISHER: Well, first of all, I come from Texas, Larry, so I come from the history of Wright Patman and Henry B. Gonzalez, and at least one of the individuals you refer to is a Texan--at least two of the individuals you refer to are Texans. I understand their sentiment--that's sort of the way we're geared down here--but I worry about it from the standpoint of if they're pointing fingers at us, I'm worried they're not focusing on really need--is needed here, which is to change the whole fiscal mix to reboot the way we tax, spend, incentivize and get our economy moving again. That's what they do as leaders if they're running for the White House, as president, working with the Congress of the United States.
As far as the impact on our decision making, whether it's Chairman Bernanke or whether it is the rest of us that sit around that table, we just don't pay attention to this. I think it's very, very important you have a central bank.
KUDLOW: No attention whatsoever?
Mr. FISHER: It is independent.
KUDLOW: Front page story, no attention whatsoever.
Mr. FISHER: That it is...
KUDLOW: I mean, they're trying to put monetary policy and Fed and...
Mr. FISHER: That this...
KUDLOW: ...the dollar square in the middle of the campaign, Richard. You're saying it has no impact at all on the Fed?
Mr. FISHER: I think it's very important that we resist the temptation to react to that criticism any way, shape or form. We know, historically, when legislatures have taken over central bank functions, you end up with Argentina...republic, nationalist China and so on. So if we don't allow it to permeate our thinking, we just do what we're suppose to do for a living, then I think we'll stand in the best stead.
KUDLOW: All right, Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas. We appreciate your views very, very much. It's great to have you visit with us again. All the best.
LARRY KUDLOW, host: Welcome back to this special edition of THE KUDLOW REPORT. We're continuing our discussion of today's stock market route, this time from the perspective of the Federal Reserve. We are honored to have a very special guest joining us this evening. Here now for an exclusive CNBC interview Richard Fisher. He's president and CEO of the Federal Reserve Bank of Dallas. Richard, welcome. You picked a hell of a day.
Mr. RICHARD FISHER: Well, wait, wait, wait. Not only am I president of the Federal Reserve Bank of Dallas, but I've been a friend of Larry Kudlow's for over 30 years, since we were embryos.
KUDLOW: Yes.
Mr. FISHER: So we started out as babies, of course.
KUDLOW: Thank you for that. I appreciate it. All right, Richard, let me just get your general impressions. Today was another plunge in stocks. We're in the throws of a 16 percent correction. What's your reaction to this kind of correction? What do you think is behind it?
Mr. FISHER: Larry, I'm a central banker. I thought your panel, by the way, earlier was very informative and very helpful. The message on that panel that don't panic. I'm a central banker. The Federal Reserve does not panic. I think we watch things carefully. You and I both know that markets are manic-depressive mechanisms. There are always some trip wires there, depending on what people are looking for. I'd just like to make two comments.
One is on Philly Fed Index. It's a wonderful index. You might wish to note to your viewers that its correlation with the PMI, that is the manufacturer's index, is .08. The two of the Fed indexes that have a good correlation are the Empire State, and then, even more than that, believe it or not, is the Dallas Fed's manufacturing survey. So I think there's a bit of an overreaction there.
And then secondly, one of the key points that was made is you have to think about the kind of dividends that are there. As I understand it, if the numbers I looked at correctly today, 60 percent of the S&P 500 is out yielding the Treasury 10-year. So I think your panel's advice don't panic is very good. Certainly we at the Central Bank have to look at things in a very calm, steady-handed way, and we'll continue to do so.
KUDLOW: Richard, I guess a two-edged question. Number one, your assessment of the outlook for recession. You had a bunch of banks today, Morgan Stanley earlier...
Mr. FISHER: Mm-hmm.
KUDLOW: ...and I'm told, as we're on the air day, Citi is downgrading its economy, its economic forecast, as is JPMorgan. Do you think--do you personally think we're going into recession?
Mr. FISHER: I've said from the very beginning this is will be a slow slog. I think it'll continue to be a slow slog. You pointed out some numbers earlier, Larry, in terms of the retail sales number, the production numbers. There have been setbacks to that in terms of various surveys. But I still think we have positive momentum. I'm not saying it is sufficient momentum to create the kind of jobs we want to create in America, but I do think we're going to have a positive third quarter. And my own personal feeling is, at least before the debt ceiling negotiations took place, I was looking for 3 percent or so in the third quarter. Still want to see that. I don't know much a retardant that comic opera was on people's willingness to commit capital to build into hire or to consume. But I'm still of the feeling that we're going to have positive momentum, Larry.
KUDLOW: Well that sort of leads to my next question. It's a puzzlement question. I've never seen so much cash and liquidity around.
Mr. FISHER: Boy, you're right.
KUDLOW: Banks have more money than they know what to do with. Corporations have more money than they know what to do with.
Mr. FISHER: Mm-hmm.
KUDLOW: And yet they all seem immobilized, not investing it, not taking risks, not hiring. Why is that?
Mr. FISHER: Mm-hmm. Well, my opinions are pretty well known there. It's not because of monetary policy. We have filled the gas tank. We got lots of fuel in there. Someone needs to step on the peddle and gauge the transmission mechanism, and I really do think the corporations have been discouraged from doing so. Obviously they're worried about weak demand. But remember, we're a consumption driven country. Unless you hire people, you can't have more consumption because you won't have more employment. And there's so much confusion on the regulatory side. There's such an uncertainty, Larry, in terms of what kind of tax regime, what kind of spending and what kind of subsidies are going to be added to, taken away, what the incentives will be that come out of this group of 12, or if they fail, will be laid down. That, to me, is not only depressing production, hiring, CAPEX and all the good things we need to see, it's also scaring the heck out of the consumer.
If you had watched that whole debacle of the debt ceiling negotiations, I would have turned to--as I did--to my wife, `Honey, we just can't afford to go on this vacation,' or, `We can't afford to buy that gizmo or that service.' I think it is a retardant. We have to get more certainty. Business operates under conditions of uncertainty, as you know. That's the way capitalism works. But extreme uncertainty freezes decision making, and I'm afraid that's the position we're in.
The Central Bank has reliquefied the system. That's what the Federal Reserve has done. The fiscal authorities, however, have to incent people, or at least help incent people, to have the confidence to go ahead and engage, expand the economy, in addition, of course, to seeing the whites of the eyes of a stronger recovery. But it can't occur unless businesses are incented to invest and hire more people.
KUDLOW: Well, in terms of Federal Reserve...
Mr. FISHER: I have very strong feelings about that.
KUDLOW: Yes, I can tell. And that, you know, I hear you on that. I get that. I hear you completely.
Mr. FISHER: Yeah. Good.
KUDLOW: But I want to--let me bring it back to the Federal Reserve. You did dissent from the last meeting.
Mr. FISHER: Yes, I did.
KUDLOW: The two year extension of the zero interest rate target. In Midland, Texas, yesterday--apparently, according to all the reports.
Mr. FISHER: Mm-hmm.
KUDLOW: You said that that zero interest rate target for two years reduces business incentives to grow and hire. Could you expand on that, because it sounds like you're suggesting the Federal Reserve's interest rate policy, the zero target is itself a disincentive, an obstacle, and may be adversely affecting the stock market?
Mr. FISHER: Well, this is my personal opinion, but there could be the unintended consequence that in addition to not knowing how you're going to be taxed or what kind of spending patterns are going to change, how it's going to affect not only your company, but your consumer base. Now you know that you can wait to borrow because the rates are going to be locked in at very low levels for a two year period. So my suggestion is and one of my arguments was that this might well further retard recovery and commitment. Again, you can't have recovery unless we have employment go up, unemployment go down. We will not have that unless people decide to expand. And right now there's almost no incentive to expand, and I was worried--this is my personal opinion--obviously I was in a minority and I respect the majority of my colleagues--that this would be a further retardant.
KUDLOW: Haven't all these zero interest--it's been several years now that we've had a zero interest rate. Hasn't it just benefited the speculators, the traders, the hedge funds? Not that they're bad people, but I just want to say, if you can borrow at zero and invest in anything with a higher yield, you win. At the same time, it's doing great damage to savers. I mean, isn't this a lopsided policy?
Mr. FISHER: Yep. Well, again, I've voiced concern about that. There's always a cost-benefit analysis takes place. Clearly one of the costs--and we're all aware of it--is the people that played by the rules, as they got older--like you and me, Larry--began to save more, shorten up on a yield curve, particularly those who don't have the benefit of sophisticated advice, have really been hammered here because it--they're getting low, in fact, negative real returns on their investment, and I think it's hurting the poor, and I think it's hurting those savers, and I think it's hurting the middle class that have played by the rules, socked away some money for retirement. And that's one of the prices we pay to try to reliquify the system.
I'm a little concerned as to how tolerant those people will be over the long term unless they see a pickup over time in the returns on their savings. But...
KUDLOW: Well, I think there's...
Mr. FISHER: It's very, very hard for retirees, and you and I agree on that front.
KUDLOW: I think there's a--I think there's a demoralization going on out there by savers and by businesses.
Mr. FISHER: Mm-hmm.
KUDLOW: But let me ask another question. I'm not going political on you, I just want a general sense. Out on the campaign trail, many if not most of the Republican candidates...
Mr. FISHER: I know what it is.
KUDLOW: I'm not going to name names, just because they're--because really many of them are attacking the Fed, sometimes in very harsh terms. I think what people want to know, not so much whether this guy is right or that lady is wrong or whatever. They want to know what kind of impact this has, these attacks on the Federal Reserve.
Mr. FISHER: Well, first of all, I come from Texas, Larry, so I come from the history of Wright Patman and Henry B. Gonzalez, and at least one of the individuals you refer to is a Texan--at least two of the individuals you refer to are Texans. I understand their sentiment--that's sort of the way we're geared down here--but I worry about it from the standpoint of if they're pointing fingers at us, I'm worried they're not focusing on really need--is needed here, which is to change the whole fiscal mix to reboot the way we tax, spend, incentivize and get our economy moving again. That's what they do as leaders if they're running for the White House, as president, working with the Congress of the United States.
As far as the impact on our decision making, whether it's Chairman Bernanke or whether it is the rest of us that sit around that table, we just don't pay attention to this. I think it's very, very important you have a central bank.
KUDLOW: No attention whatsoever?
Mr. FISHER: It is independent.
KUDLOW: Front page story, no attention whatsoever.
Mr. FISHER: That it is...
KUDLOW: I mean, they're trying to put monetary policy and Fed and...
Mr. FISHER: That this...
KUDLOW: ...the dollar square in the middle of the campaign, Richard. You're saying it has no impact at all on the Fed?
Mr. FISHER: I think it's very important that we resist the temptation to react to that criticism any way, shape or form. We know, historically, when legislatures have taken over central bank functions, you end up with Argentina...republic, nationalist China and so on. So if we don't allow it to permeate our thinking, we just do what we're suppose to do for a living, then I think we'll stand in the best stead.
KUDLOW: All right, Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas. We appreciate your views very, very much. It's great to have you visit with us again. All the best.
18 Ağustos 2011 Perşembe
On CNBC's Kudlow Report Tonight
Please join us at 7pm ET tonight on CNBC.MARKET SELL-OFF: WHAT'S GOING ON HERE?
- Mike Holland, Holland & Company Chairman; The China Fund Board of Directors (CHN)
- Jim Iuorio, Director, TJM Institutional Services
- Art Hogan, Lazard Capital Markets Managing Director
- Joseph Grano, Centurion Holdings CEO; Former UBS Wealth Management USA Chairman & CEO
ONE-ON-ONE WITH RICHARD FISHER … IS THE FED BETWEEN A ROCK AND A HARD PLACE
- Richard Fisher, Dallas Fed President & CEO
THE SAFETY & SOUNDNESS OF BANKS: ARE NY & EUROPEAN BANKS FUNDED?
- David Malpass, Encima Global President; Fmr. Bear Stearns Chief Economist; GrowPac Chairman; Fmr Reagan Deputy Asst Secy of Treasury
- Bill Rhodes, Fmr. Citi Senior VP
- Bill Isaac, The Secura Group Founder & Chmn; Fmr. Fifth Third Bank Chmn; Fmr. FDIC Chmn
MARKET DRILLDOWN
- CNBC’s Bob Pisani
- CNBC’s Rick Santelli
- Bob Lutz, Former GM Motors Vice Chairman; CNBC Contributor
- Warren Meyers, DME Securities Vice President of Floor Operations & CNBC Market Analyst
Euro Banking Fears Flare Up Again
Another busy morning. The markets are down sharply in early trading, following large selloffs in European markets. The culprit seems to be a report that a European bank went to the ECB lending window for the first time since February and needed a short-term loan at above market rates. This type of report sparks fears of credit tightening, and the markets never like that sort of thing.
On top of that, we had some negative economic reports here in the US. The Philly Fed index absolutely plunged in August to a level of -30.7 from +3.2 last month. That is quite a drop. Additionally, Morgan Stanley downgraded its outlook of the economy and said we are getting closer to recession. I still think the odds of a true recession are about 50/50 right now, and a more likely scenario is just stagnating growth.
The 10-year yield also plunged this morning, touching the 2.0% level. That's lower than it got in December 2008, just for a reference. Investors who think a 10-yr Treasury at 2.0% is a better long-term investment than a blue chip stock with a 3% dividend are going to be sadly disappointed.
We are also seeing spikes in bearish sentiment. The CBOE put/call ratio has been above the 1.0 level for 15 straight days, and the 10-day average hit its highest level since 2008. Today, the volatility index (VIX) is spiking 30% higher back above 40, although it is still below last week's highs at 48.
The dollar is higher, which is weighing on most commodities. Oil prices are down to $83.15. But the flight to safety is pushing gold prices to new highs again, today topping $1820.
Trading comment: This morning's action makes me feel better about the recent sales we have made and the hedges we added to portfolios. Getting defensive when the markets are in a downtrend preserves both financial and mental capital, and both are needed if you want to be in a position to capitalize on things when the dust eventually settles. I hope everyone is managing their risk appropriately.
On top of that, we had some negative economic reports here in the US. The Philly Fed index absolutely plunged in August to a level of -30.7 from +3.2 last month. That is quite a drop. Additionally, Morgan Stanley downgraded its outlook of the economy and said we are getting closer to recession. I still think the odds of a true recession are about 50/50 right now, and a more likely scenario is just stagnating growth.
The 10-year yield also plunged this morning, touching the 2.0% level. That's lower than it got in December 2008, just for a reference. Investors who think a 10-yr Treasury at 2.0% is a better long-term investment than a blue chip stock with a 3% dividend are going to be sadly disappointed.
We are also seeing spikes in bearish sentiment. The CBOE put/call ratio has been above the 1.0 level for 15 straight days, and the 10-day average hit its highest level since 2008. Today, the volatility index (VIX) is spiking 30% higher back above 40, although it is still below last week's highs at 48.
The dollar is higher, which is weighing on most commodities. Oil prices are down to $83.15. But the flight to safety is pushing gold prices to new highs again, today topping $1820.
Trading comment: This morning's action makes me feel better about the recent sales we have made and the hedges we added to portfolios. Getting defensive when the markets are in a downtrend preserves both financial and mental capital, and both are needed if you want to be in a position to capitalize on things when the dust eventually settles. I hope everyone is managing their risk appropriately.
17 Ağustos 2011 Çarşamba
An Interview with Austan Goolsbee
Departing Council of Economic Advisers chairman Austan Goolsbee defends Obamanomics. I push back. But he's for pro-growth tax reform. I'm for it. So where's the President?
LARRY KUDLOW, host:
So now I am personally honored to be joined for an exclusive interview by the
former chairman of the President's Council of Economic Advisers, that being
Austan Goolsbee. He is returning to the faculty of the University of
Chicago's Booth School of Business this week. An old friend of the show.
Good evening, Austan. Let me just say congratulations on your government
service.
Mr. AUSTAN GOOLSBEE: Hey, thank you, Larry, and it's great to be back and
see you again.
KUDLOW: All right, that's the good news. The bad news, Austan, as you well
know, America is not working. Many fear a double-dip recession. There has
already been a debt downgrade. What is your man, President Obama, going to
do? Can you tell us what he's going to say in this so-called new economic
growth plan?.
Mr. GOOLSBEE: Well, you know, I'm not going to give away any secrets. It's
his to make. You and I, Larry, for many, many years, have been the growth
guys. And while we may disagree on this or that or some other policies,
fundamentally we got to get the country growing if we're going to be
generating jobs, and we saw that last year when the economy was growing at a
faster clip. We added more than two million jobs, as well as the stock market
was doing well and you were starting to see more business investment. As we
slowed down this year, we took a hit on all of those fronts. So hopefully
it's going to be in the style of the education, innovation and investment,
which I kind of think is--has got to be the fundamentals of any growth
strategy.
KUDLOW: Yeah, but Austan, I don't--look, let's go back to basics. The $800
billion stimulus package hasn't worked. The $2 1/2 trillion Fed stimulus
package hasn't worked. Cash for clunkers hasn't worked. These green energy
ideas hasn't worked.
Mr. GOOLSBEE: Well...
KUDLOW: Your president is out there talking about raising taxes on
millionaires and billionaires.
Mr. GOOLSBEE: Well, let's--now hold on a second, Larry.
KUDLOW: What kind of message does that send to entrepreneurs and free
enterprise business people who, frankly, are immobilized and don't want to
create jobs, Austan? Isn't it time to turn over a new leaf and start
something new?
Mr. GOOLSBEE: Have you been saving this all up since I've been--last been
on, Larry?
KUDLOW: Only for you, my friend. Only for you, because you're such a good
guy.
Mr. GOOLSBEE: Well, look--look, what I will say is this, I don't agree--if
you start looking at the impact of various programs. We avoided a depression,
which was a scary moment, but all of that stuff was two-and-a-half years ago.
If you look at the president cutting the capital gains rate to zero for people
starting their own businesses, cutting taxes 17 different times for small
business, I'd a thought you'd be for that stuff, Larry.
KUDLOW: Those are not tax cuts. You see, the whole...
Mr. GOOLSBEE: How is that not a tax cut?
KUDLOW: One of my problems with your line of thinking is you believe that
little teensy-weensy, temporary, targeted tax cuts; and from what I gather
from our John Harwood, you're going to go there again. Another one year
payroll tax cut will not do it, Austan. Don't you understand, businesses
think longer term. Is there anybody in the White House that's ever worked in
a business that sees a five-year horizon, permanent reductions in tax rates
work? These teensy-weensy tax credits never work, Austan. That's why we're
at 1 percent growth in the economy.
Mr. GOOLSBEE: Look--oh, you and I are both for a low rate and a broad base.
KUDLOW: Yes!
Mr. GOOLSBEE: Now when the president has proposed...
KUDLOW: Where is that? Where is that, Austan?
Mr. GOOLSBEE: Well...
KUDLOW: Where is his broad base? Yes, let's start there.
Mr. GOOLSBEE: Go ask the members...
KUDLOW: We can agree on that.
Mr. GOOLSBEE: ...of Congress. When the president proposed a grand bargain
with a low rate and a broad base, they said, `What do you mean broaden base?
We don't want to broaden the base. That would be a tax increase.'
KUDLOW: Well, but if you lowered the rates and broaden the base, if you
rolled back regulations, if you stopped the National Labor Relations Board
from attacking businesses, Austan, you would see companies spending the
several trillion dollars of cash that they're not spending now, my friend.
Mr. GOOLSBEE: Well, now, hold on, Larry. You see that same accumulation of
cash in other countries that have totally different policies than we have in
the US. So I think it's very unlikely to attribute that to the policy
decisions that are taking place in the US, first of all. And second of all,
you have seen that the president has actively been trying to streamline
regulations. And just going back to the policies that led to the downturn
hardly strikes me as the wisest course of action.
KUDLOW: I don't see...
Mr. GOOLSBEE: We ought to do some third thing.
KUDLOW: Well...
Mr. GOOLSBEE: And I think you will likely see the president proposing that.
KUDLOW: I mean, I don't see--you've tried all this big government spending
and regulate. Why not have flat tax reform? Why not roll back regulations?
Why not put yourself in the position of a small business, Austan? They're
worried about Obamacare. They're worried about...
Mr. GOOLSBEE: Look, the president has done that.
KUDLOW: They're worried about Dodd and Frank. Why not understand that
community banks are afraid to make a loan because of overregulation?
Mr. GOOLSBEE: Well, Larry, again, I think you're being highly unfair. The
president has cut taxes for small business 17 times. It's not my job to come
down and get in a big battle over things that happened two
years--two-and-a-half years ago in the stimulus. If you look from this point
forward, what do we need to grow? As I look at what the administration is
doing, where they are in those areas where streamlining of regulation can be
effective, trying to streamline the regulations. They're trying to cut taxes
for small business. And they're trying to make the investments. It seems
like you were making fun of an infrastructure bank.
KUDLOW: Yes.
Mr. GOOLSBEE: That's one of the only things that the Chamber of Commerce and
the labor unions agree on...
KUDLOW: I don't care if the chamber is for it.
Mr. GOOLSBEE: ...that the infrastructure will be critically important.
KUDLOW: Austan, you spent a lot of money.
Mr. GOOLSBEE: With...
KUDLOW: And the president himself said those jobs were not shovel ready. I
don't think an infrastructure bank or any other form of additional spending is
going to help grow the economy and unleash entrepreneurship, with all do
respect.
Mr. GOOLSBEE: Well, you know...
KUDLOW: And I want to ask you about another one. Is the president going to
extend unemployment benefits for another 99 weeks, because many economists, as
you well know, believe that this kind of unemployment benefit extension is
actually keeping unemployment high?
Mr. GOOLSBEE: Well, the evidence that I've seen on that suggests that it's
not keeping unemployment high. You have to be looking for a job to get
unemployment benefits. If you stop looking for work, you are no longer
eligible to receive and benefits. And though it's come down substantially, we
still have more than four-and-a-half people looking for a job for every job
that's out in the economy. So I, you know, I think that's a little unfair to
be trying to pin our economic problems on the fact that we're trying to give
people some time to help them find a job.
KUDLOW: All right, my last one is--look it, you've been very patient. I
appreciate that. But this is such important stuff, Austan. You've a good
man. We've known each other long time. All this green energy stuff has been
an abject value. You're never going to do more than 1/2 percent or 1 percent
of American energy. Why doesn't that administration come out full throated
for American energy production? We've got the oil shale. We've got the
natural gas shale.
Mr. GOOLSBEE: We did.
KUDLOW: No, see...
Mr. GOOLSBEE: How can you say that?
KUDLOW: They don't...
Mr. GOOLSBEE: They did. Domestic production is the highest it's...
KUDLOW: They refused to call off the EPA dogs.
Mr. GOOLSBEE: ...been since the--for many years.
KUDLOW: I understand. But they refuse to call off the EPA dogs that are
investigating the infras--the fracking structure and the water levels. And
this is one of the great job...
Mr. GOOLSBEE: Wait, look, look.
KUDLOW: ...creators of all time.
Mr. GOOLSBEE: Look, we have to--we have to promote domestic energy
consumption. We have to do that in a way that's safe. We don't want to have
the biggest oil spill again that has ever been had. We don't want to poison
the ground water. But the president, as I've viewed it, the administration
believes that we can do that in a safe way, and domestic production is ramping
up quite dramatically. Now it seems like you're making fun of some of the
alternative energy stuff, but if you look at China, if you look at Europe and
if you look at a lot of the faster growing regions of the world, they're
heavily investing in it.
KUDLOW: It's been a dismal failure in Europe.
Mr. GOOLSBEE: (Unintelligible)...alternative energy.
KUDLOW: It's been a dismal failure in Spain. It's been a dismal failure in
Europe. I say, Austan, if the market...
Mr. GOOLSBEE: It seems like in China and Brazil it's been quite a success.
KUDLOW: If the market wants to produce clean energy, it'll produce clean
energy. Natural gas from shale is clean energy.
Mr. GOOLSBEE: Look, I agree with that.
KUDLOW: I just don't see why we don't...
Mr. GOOLSBEE: I agree with that.
KUDLOW: ...call the EPA dogs off. That's one of these regulatory issues.
Call the National Labor Relation dogs off of Boeing, Austan. In other words,
some of this stuff, there's very little presidents can do. I get that.
Mr. GOOLSBEE: OK.
KUDLOW: But the signals, the messages, is it pro-confidence or
anti-confidence? We have got to get America working again and right now it's
not happening. I'm going to give you the last word, my friend.
Mr. GOOLSBEE: OK. All I'll say is if you look at countries where it
is--where they are rapidly growing, they're investing in their infrastructure.
They're investing in their educations. They are trying to streamline
regulations but they're not neglecting key investments. The president when
he's out looking at fiscal consolidation for the long-term, but making the key
investments that are pro-business, I really think that's the--what we should
be doing, and I feel that that could be certainly a bipartisan thing.
KUDLOW: Well, all right. I say make it pay more after tax for all business
ventures. But, Austan, we've ran out of time. You're very kind to come on
the show. It is a pleasure to see you.
Mr. GOOLSBEE: Great to see you, Larry.
KUDLOW: I hope you'll come back now that you're going back to college.
Mr. GOOLSBEE: You bet.
KUDLOW: And I appreciate it very much. You know I have the highest regard
for you. Austan Goolsbee.
Mr. GOOLSBEE: It's great to see you.
LARRY KUDLOW, host:
So now I am personally honored to be joined for an exclusive interview by the
former chairman of the President's Council of Economic Advisers, that being
Austan Goolsbee. He is returning to the faculty of the University of
Chicago's Booth School of Business this week. An old friend of the show.
Good evening, Austan. Let me just say congratulations on your government
service.
Mr. AUSTAN GOOLSBEE: Hey, thank you, Larry, and it's great to be back and
see you again.
KUDLOW: All right, that's the good news. The bad news, Austan, as you well
know, America is not working. Many fear a double-dip recession. There has
already been a debt downgrade. What is your man, President Obama, going to
do? Can you tell us what he's going to say in this so-called new economic
growth plan?.
Mr. GOOLSBEE: Well, you know, I'm not going to give away any secrets. It's
his to make. You and I, Larry, for many, many years, have been the growth
guys. And while we may disagree on this or that or some other policies,
fundamentally we got to get the country growing if we're going to be
generating jobs, and we saw that last year when the economy was growing at a
faster clip. We added more than two million jobs, as well as the stock market
was doing well and you were starting to see more business investment. As we
slowed down this year, we took a hit on all of those fronts. So hopefully
it's going to be in the style of the education, innovation and investment,
which I kind of think is--has got to be the fundamentals of any growth
strategy.
KUDLOW: Yeah, but Austan, I don't--look, let's go back to basics. The $800
billion stimulus package hasn't worked. The $2 1/2 trillion Fed stimulus
package hasn't worked. Cash for clunkers hasn't worked. These green energy
ideas hasn't worked.
Mr. GOOLSBEE: Well...
KUDLOW: Your president is out there talking about raising taxes on
millionaires and billionaires.
Mr. GOOLSBEE: Well, let's--now hold on a second, Larry.
KUDLOW: What kind of message does that send to entrepreneurs and free
enterprise business people who, frankly, are immobilized and don't want to
create jobs, Austan? Isn't it time to turn over a new leaf and start
something new?
Mr. GOOLSBEE: Have you been saving this all up since I've been--last been
on, Larry?
KUDLOW: Only for you, my friend. Only for you, because you're such a good
guy.
Mr. GOOLSBEE: Well, look--look, what I will say is this, I don't agree--if
you start looking at the impact of various programs. We avoided a depression,
which was a scary moment, but all of that stuff was two-and-a-half years ago.
If you look at the president cutting the capital gains rate to zero for people
starting their own businesses, cutting taxes 17 different times for small
business, I'd a thought you'd be for that stuff, Larry.
KUDLOW: Those are not tax cuts. You see, the whole...
Mr. GOOLSBEE: How is that not a tax cut?
KUDLOW: One of my problems with your line of thinking is you believe that
little teensy-weensy, temporary, targeted tax cuts; and from what I gather
from our John Harwood, you're going to go there again. Another one year
payroll tax cut will not do it, Austan. Don't you understand, businesses
think longer term. Is there anybody in the White House that's ever worked in
a business that sees a five-year horizon, permanent reductions in tax rates
work? These teensy-weensy tax credits never work, Austan. That's why we're
at 1 percent growth in the economy.
Mr. GOOLSBEE: Look--oh, you and I are both for a low rate and a broad base.
KUDLOW: Yes!
Mr. GOOLSBEE: Now when the president has proposed...
KUDLOW: Where is that? Where is that, Austan?
Mr. GOOLSBEE: Well...
KUDLOW: Where is his broad base? Yes, let's start there.
Mr. GOOLSBEE: Go ask the members...
KUDLOW: We can agree on that.
Mr. GOOLSBEE: ...of Congress. When the president proposed a grand bargain
with a low rate and a broad base, they said, `What do you mean broaden base?
We don't want to broaden the base. That would be a tax increase.'
KUDLOW: Well, but if you lowered the rates and broaden the base, if you
rolled back regulations, if you stopped the National Labor Relations Board
from attacking businesses, Austan, you would see companies spending the
several trillion dollars of cash that they're not spending now, my friend.
Mr. GOOLSBEE: Well, now, hold on, Larry. You see that same accumulation of
cash in other countries that have totally different policies than we have in
the US. So I think it's very unlikely to attribute that to the policy
decisions that are taking place in the US, first of all. And second of all,
you have seen that the president has actively been trying to streamline
regulations. And just going back to the policies that led to the downturn
hardly strikes me as the wisest course of action.
KUDLOW: I don't see...
Mr. GOOLSBEE: We ought to do some third thing.
KUDLOW: Well...
Mr. GOOLSBEE: And I think you will likely see the president proposing that.
KUDLOW: I mean, I don't see--you've tried all this big government spending
and regulate. Why not have flat tax reform? Why not roll back regulations?
Why not put yourself in the position of a small business, Austan? They're
worried about Obamacare. They're worried about...
Mr. GOOLSBEE: Look, the president has done that.
KUDLOW: They're worried about Dodd and Frank. Why not understand that
community banks are afraid to make a loan because of overregulation?
Mr. GOOLSBEE: Well, Larry, again, I think you're being highly unfair. The
president has cut taxes for small business 17 times. It's not my job to come
down and get in a big battle over things that happened two
years--two-and-a-half years ago in the stimulus. If you look from this point
forward, what do we need to grow? As I look at what the administration is
doing, where they are in those areas where streamlining of regulation can be
effective, trying to streamline the regulations. They're trying to cut taxes
for small business. And they're trying to make the investments. It seems
like you were making fun of an infrastructure bank.
KUDLOW: Yes.
Mr. GOOLSBEE: That's one of the only things that the Chamber of Commerce and
the labor unions agree on...
KUDLOW: I don't care if the chamber is for it.
Mr. GOOLSBEE: ...that the infrastructure will be critically important.
KUDLOW: Austan, you spent a lot of money.
Mr. GOOLSBEE: With...
KUDLOW: And the president himself said those jobs were not shovel ready. I
don't think an infrastructure bank or any other form of additional spending is
going to help grow the economy and unleash entrepreneurship, with all do
respect.
Mr. GOOLSBEE: Well, you know...
KUDLOW: And I want to ask you about another one. Is the president going to
extend unemployment benefits for another 99 weeks, because many economists, as
you well know, believe that this kind of unemployment benefit extension is
actually keeping unemployment high?
Mr. GOOLSBEE: Well, the evidence that I've seen on that suggests that it's
not keeping unemployment high. You have to be looking for a job to get
unemployment benefits. If you stop looking for work, you are no longer
eligible to receive and benefits. And though it's come down substantially, we
still have more than four-and-a-half people looking for a job for every job
that's out in the economy. So I, you know, I think that's a little unfair to
be trying to pin our economic problems on the fact that we're trying to give
people some time to help them find a job.
KUDLOW: All right, my last one is--look it, you've been very patient. I
appreciate that. But this is such important stuff, Austan. You've a good
man. We've known each other long time. All this green energy stuff has been
an abject value. You're never going to do more than 1/2 percent or 1 percent
of American energy. Why doesn't that administration come out full throated
for American energy production? We've got the oil shale. We've got the
natural gas shale.
Mr. GOOLSBEE: We did.
KUDLOW: No, see...
Mr. GOOLSBEE: How can you say that?
KUDLOW: They don't...
Mr. GOOLSBEE: They did. Domestic production is the highest it's...
KUDLOW: They refused to call off the EPA dogs.
Mr. GOOLSBEE: ...been since the--for many years.
KUDLOW: I understand. But they refuse to call off the EPA dogs that are
investigating the infras--the fracking structure and the water levels. And
this is one of the great job...
Mr. GOOLSBEE: Wait, look, look.
KUDLOW: ...creators of all time.
Mr. GOOLSBEE: Look, we have to--we have to promote domestic energy
consumption. We have to do that in a way that's safe. We don't want to have
the biggest oil spill again that has ever been had. We don't want to poison
the ground water. But the president, as I've viewed it, the administration
believes that we can do that in a safe way, and domestic production is ramping
up quite dramatically. Now it seems like you're making fun of some of the
alternative energy stuff, but if you look at China, if you look at Europe and
if you look at a lot of the faster growing regions of the world, they're
heavily investing in it.
KUDLOW: It's been a dismal failure in Europe.
Mr. GOOLSBEE: (Unintelligible)...alternative energy.
KUDLOW: It's been a dismal failure in Spain. It's been a dismal failure in
Europe. I say, Austan, if the market...
Mr. GOOLSBEE: It seems like in China and Brazil it's been quite a success.
KUDLOW: If the market wants to produce clean energy, it'll produce clean
energy. Natural gas from shale is clean energy.
Mr. GOOLSBEE: Look, I agree with that.
KUDLOW: I just don't see why we don't...
Mr. GOOLSBEE: I agree with that.
KUDLOW: ...call the EPA dogs off. That's one of these regulatory issues.
Call the National Labor Relation dogs off of Boeing, Austan. In other words,
some of this stuff, there's very little presidents can do. I get that.
Mr. GOOLSBEE: OK.
KUDLOW: But the signals, the messages, is it pro-confidence or
anti-confidence? We have got to get America working again and right now it's
not happening. I'm going to give you the last word, my friend.
Mr. GOOLSBEE: OK. All I'll say is if you look at countries where it
is--where they are rapidly growing, they're investing in their infrastructure.
They're investing in their educations. They are trying to streamline
regulations but they're not neglecting key investments. The president when
he's out looking at fiscal consolidation for the long-term, but making the key
investments that are pro-business, I really think that's the--what we should
be doing, and I feel that that could be certainly a bipartisan thing.
KUDLOW: Well, all right. I say make it pay more after tax for all business
ventures. But, Austan, we've ran out of time. You're very kind to come on
the show. It is a pleasure to see you.
Mr. GOOLSBEE: Great to see you, Larry.
KUDLOW: I hope you'll come back now that you're going back to college.
Mr. GOOLSBEE: You bet.
KUDLOW: And I appreciate it very much. You know I have the highest regard
for you. Austan Goolsbee.
Mr. GOOLSBEE: It's great to see you.
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