Moments ago, during an interview on Wharton Business Radio, St. Louis Fed president James Bullard, who recently flipped from the Fed’s biggest hawk to its more vocal dove, said that he sees just one rate interest in the next few years. Judging by the market action ever since the February lows, he is merely confirming what the market already knows. He also confirmed that the Fed will never hike rates at a time when even one recent economic data point has printed negative, saying “the right time to move rates is after good economic news.”
More troubling was his admission that the Fed is now helpless to fix America’s biggest problem, namely the ongoing decline in productivity by saying the Fed “can’t influence US productivity growth rate.” He is sadly very wrong here, because while the Fed can not influence productivity, it certainly can influence what corporations allocate capital toward, and as we have repeatedly shown, in recent years, virtually every dollar of free cash flow generated by the S&P500 has gone not toward productivity-boosting activities like spending on growth capex or expanding R&D, but toward stock buybacks and dividends, instead. We are confident not even Bullard would deny that pushing the stock market higher in what is one slow-motion, marketwide LBO (or rather MBO) does absolutely nothing for economic productivity; it does, however, do miracles for trickle-up wealth, as both investors and management teams (courtesy of their equity-linked compensation) have never been richer.
However, the most amusing soundbite was the following:
- FED’S BULLARD: WE DON’T SEE RECESSION RISK LIKELY IN NEAR TERM
Why amusing? Because in saying that, Bullard reiterated something he himself made fun of less than three years ago, during a presentation at the University of Arkansas in November 2013, when discussing the “Notorious Summer of 2008″, he mocked precisely such forecasts when he said that “As of July 10, 2008, forecasts for the second half of 2008 were for continued modest growth” and added that “as of early August 2008, the growth picture for the U.S. economy according to available real-time data was relatively good.” Finally, he noted that “There was no recession according to the conventional definition of two consecutive quarters of negative GDP growth”
Fast forward to August 12, 2016 when he moments ago said the exact same thing.
As a reminder, in August 2008, we later learned, the US economy was already 8 months into a recession. And here is something truly ironic: the consensus growth expectation in August 2008 was identical to the one as of this moment.
Finally, in September 2008, just one month later, the market imploded and the biggest bail-out in the financial system was about to be unleashed.
Will Bullard make it 2 for 2?
h/t @GreekFire23
via http://ift.tt/2bbSyzC Tyler Durden