Bernanke's Speech
#1
Posted 11 September 2007 - 10:55 AM
At the same time, domestic US savings rates have collapsed. Arguably (my opinion, not his words) we are upside down on our "national mortgage."
We face a demographic headwind to mitigating the savings situation as the baby boom ages, and the domestic workforce contracts.
We need to find a way to attract foreign capital back to dollar denominated assets, and at the same time we need to encourage savings and discourage consumption domestically.
Read the spech yourself here: http://www.federalre...ke20070911a.htm
***Warning: Personal opinion follows***
The logical conclusion to what Ben is saying is that risk free unlevered rates of return need to go up here in the US. At the same time, on a relative basis, these rates need to be attractive in terms of the currencies of the countries that enjoy a savings surplus.
How are you going to get the dollar down and raise interest rates at the same time?
Answer: Don't cut rates, let asset prices drop to the point of attractiveness. To foreigners, our domestic services based economy just amounts to a bunch of wackos giving each other expensive haircuts and backrubs.
I see this spech as shockingly hawkish. I know he'll be gradual, and of course I know the audience, but I suspect he's sending a message to the Euro crew that he'll be more Volcker than Greenspan.
Later today, if the proprietary desks aggressively sell (they're debating it right now in the wood panelled corner office), then I think I have my proof.
#2
Posted 11 September 2007 - 11:02 AM
#3
Posted 11 September 2007 - 11:06 AM
#4
Posted 11 September 2007 - 11:14 AM
#5
Posted 11 September 2007 - 11:16 AM
To foreigners, our domestic services based economy just amounts to a bunch of wackos giving each other expensive haircuts and backrubs.
I like your sense of humor
#6
Posted 11 September 2007 - 11:18 AM
"We need to find a way to attract foreign capital back to dollar denominated assets, and at the same time we need to encourage savings and discourage consumption domestically."
So whos is the target audience? Is he just trying to give the outside world an impression or do we
not only have a recession but a planned deflation? This is certainly talking the talk.
#7
Posted 11 September 2007 - 11:23 AM
There is no choice but to inflate, IMO. Too much debt outstanding, the situation may go out of control.
OGM,
I don't disgree with your conclusion about the US needing to shift to exports. I know a smart guy in Omaha that has done two things in the last twelve months. He's made a huge short bet on the dollar, and he's buying up the infrastructure (Rails) that feed our shipping ports. He obviously knows what he's doing.
But I think what Ben is saying, is that inflating will not affect REAL rates of return, as the increases to our savings at a national level will be wiped out in foreign terms by inflation. No what I am saying is that Ben intends to carry out a RTC like selloff in capital assets, including debt, while at the same time protecting this investment (for foreigners) with a hawkish fed stance. Here's the checklist:
The dollar needs to drop.
Foreigners need to be the buyers of this debt mountain we've created, and Ben's willing to give it to them for pennies on the dollar
Domestic consumption needs to slow down. He'll take a recession in a lame duck presidency year to do it.
Rates need to stay (relatively) high.
IMHO, of course.
"We need to find a way to attract foreign capital back to dollar denominated assets, and at the same time we need to encourage savings and discourage consumption domestically."
So whos is the target audience? Is he just trying to give the outside world an impression or do we
not only have a recession but a planned deflation? This is certainly talking the talk.
Thats exactly what I'm saying- a recession and a planned deflation- just like the RTC, but on an international level and without any press releases as to whats really going on.
The speech targets are the Euro block, China, and the Middle East.
It just may work too. But like any garage sale, the people have to show up.
If he talks reflation, they won't.
Edited by phineas_gage, 11 September 2007 - 11:30 AM.
#8
Posted 11 September 2007 - 12:32 PM
Richard Wyckoff - "Whenever you find hope or fear warping judgment, close out your position"
Volume is the only vote that matters... the ultimate sentiment poll.
http://twitter.com/VolumeDynamics http://parler.com/Volumedynamics
#9
Posted 11 September 2007 - 01:09 PM
Ben's been fairly consistent with his "Everything is fine in the economy statements". What is hurting him now is that he said for months that subprime was no problem, and now the employment report (a lagging indicator) is saying something else about the economy. Add to that the spew of his juniors in the Fed ... creating speculation over 1/4, 1/2 or none at all and it sets up a mystery for the street to sell, that's all this is, because even if Ben cuts, it's not going to change the outcome. His credibility is shot at the moment. The street is starting to not like this guy.
Agreed about the rate cut not helping much. I do think it will help a little however. Dropping rates I don't think will hurt or help the markets at this point. The market itself appears to be ready to take off upwards for another good run. The economy is starting to pick up steam ( except housing ). I know some of you will say the economy and housing are almost one in the same. But there are other sides of the Economy are set to take off in 2008 - 2010 ( first technology mobile computer ( not laptop ) ).
Barry
#10
Posted 11 September 2007 - 05:05 PM
Edited by SandStorm, 11 September 2007 - 05:07 PM.