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Even Cramer Can See Bullard Is Blind – Ep. 147

  • The rally in the U.S. stock market continues, the Dow closing up more than 212 right at the high of the day
  • It’s not just the Dow Jones that is rising, and by the way, this is the highest the Dow Jones has closed since early January, so it’s better than a one month high
  • Oil prices closed above $33/barrel for West Texas, again that’s the highest level since early January
  • The dollar is weak across the board, in fact the Canadian dollar hit a 3-month high today against the U.S. dollar – this currency has really been beaten up until recently
  • Gold, higher again today, up about 4 or 5 bucks, it closed above $1232
  • What is behind the rally? I think it is the deluge of bad economic news that keeps raining down on this market
  • I believe more and more people are beginning to realize that the Fed is not only not going to be raising interest rates in 2016, but they will cut them, and do another round of economic stimulus and that’s is what is saving the market
  • The question is, with the Fed actually validate those expectations?
  • Even Jim Cramer of CNBC can see there’s a recession
  • I just put up an article on my Facebook page yesterday, Cramer is saying the Fed is blind and can’t see the recession
  • Maybe Cramer has been listening to my podcasts…
  • Do you remember the famous interview with Jim Cramer and Erin Burnett that went viral and he went on a rant about the Fed, “They know nothing!”
  • You’ve got Cramer calling out the Fed for not appreciating the weakness in the economy and calling on them to do something
  • I think they are going to do something, they’re not just going to turn a deaf ear to the economy
  • But the Fed is still officially sticking to the party line
  • Today I wanted to talk about the CNBC interview with Jim Bullard
  • First, he told
  • Of all the things you’re going to worry about as a central banker, you’re going to worry about the fact that people don’t expect enough inflation?
  • Historically that would be a victory – that’s what you want as a central banker
  • You want to stamp out the fear of inflation
  • What Bullard wants is more fear – he wants people to expect even higher inflation than they currently experience
  • Why would he want that?
  • Supposedly the lack of belief that inflation is going to be higher is somehow holding back the economy
  • Bullard believes inflation is going to be higher; why is he upset that the public doesn’t believe it, too? Why?
  • How does the expectation of higher inflation help an economy?
  • The only thing that’s good about inflation is if you’re a debtor; if you borrowed money, inflation will help ease the pain of that debt
  • You would figure the last thing the Fed would want is for people to expect higher inflation, because what would happen to bond holders?
  • Bond holders would not want to hold bonds at low rates; they would demand higher interest on those bonds, which would crush the government because they don’t have the money
  • It would also crush the Fed, because the Fed’s balance sheet is loaded up with long-term government bonds that yield next to nothing
  • What’s going to happen to the value of those bonds if potential buyers believe inflation is going to be higher?
  • Bond prices will collapse and the Fed will take a huge hit
  • It makes no sense at all that anyone on the Fed would be worried that inflation expectations aren’t high enough
  • They should be relieved that people aren’t smart enough to expect higher inflation
  • That is going to be one of the best examples of, “Be careful what you wish for”
  • Also, Bullard acknowledged that 2015 GDP growth was disappointing – 1.8%
  • And who knows, it might be less, as we’re getting revisions to Q4 tomorrow
  •  Bullard says that this year GDP will be a lot better, forecasting about 2-1/2% growth for 2016
  • I would have love to have seen a follow up question: “What makes you think that? What is the evidence?”
  • All the evidence would suggest the opposite
  • Think about where we were in February of 2015 – we came into 2015 with a Q4 GDP of 2-1/2%
  • We are starting 2016 with the last quarter was just .7%
  • Of course, it’s much worse: the stock market had its worst start of the new year ever
  • Look at the spreads on junk bonds
  • Look at the carnage in the banks
  • Look at corporate earnings
  • Look at the economic data – the Service PMI is in contraction, below 50
  • We are having a worse start to 2016 than the start of 2008, and we all know how that turned out
  • Interest rates were at zero for the entirety of 2015, so the economy and the markets had that tail wind of 0% interest rates
  • Now, we had a rate hike and  we’re facing the potential of 3 or 4 more hikes during the course of the year
  • So now we have an additional headwind
  • The economy only grew at 1.8% last year and it didn’t have any of the problems we have now, how is it possible, with higher interest rates, that anybody could proclaim that 2016 will be a much better year for the economy than 2015?
  • Unemployment is lower, but so is labor force participation.  Full-time employment is down
  • Look at all the announced layoffs
  • We’re much more likely to see an increase in unemployment in 2016 than we had in 2015
  • Why would you expect that the economy will grow faster this year than it did last year?
  • Bullard can’t possible believe this, it’s got to be Open Mouth Operations, a desperate attempt to talk the economy up
  • They are trying to mold expectations, as team players of the Administration
  • At some point they are going to have to retract their narrative that the economy is much better, but what are they going to blame it on?
  • They are not going to take responsibility for it themselves
  • Finally when Bullard was asked about when to expect a rate hike and how many to expect this year, he dodged the question, retreating to the “data dependent” stance to hedge his bets
  • December’s rate hike came amid lousy data, so the decision had nothing to do with the rate hike – it was the calendar – the year was almost over and they were afraid if they didn’t do it, they would be admitting that the economy was not as rosy as they had contended all year
  • The reason for this rally is based on the growing expectation that the Fed is not going to be raising rates in March or anytime this year
  • I still think we will get a rate cut and even QE might not deliver the artificial high we got before
  • They’re going to have to do a Main Street QE, helicopter-drop type, Keynesian stimulus that no one will oppose in an election year
  • The longer the Fed waits, the closer to the election they get, and if the recession rears its head during Obama’s watch, Donald Trump will be a shoe-in to beat Hillary Clinton
  • If people want change, the only candidate that can sell change, is Donald Trump
  • A lot of Bernie Sanders supporters just want to throw a monkey wrench into the political machine
  • I would not be surprised to see a lot of Sanders voters to vote for Trump over Hillary
  • So there’s a lot of pressure building on the Fed from the Administration and from Wall Street to do something
  • Finally, I wanted to talk about this article, which I posted on my Facebook page, “Under Sanders, income and jobs would soar, economist says”
  • An economist claims we would have a huge boom under Sanders because he will “juice GDP and productivity by pouring $14.5 trillion into the economy.”
  • Where is that $14.5 trillion going to come from? Bernie doesn’t have a magic pitcher that he can just pour $14.5 trillion into the economy
  • The problem is he will first have to siphon much more than 14.5 trillion out of the economy before pouring it back in
  • As my father used to say, its like giving yourself a blood transfusion from your left arm to your right, while spilling half the blood on the floor
  • The larger problem is that the money the government takes out of the economy would otherwise have been productively invested, while the money it puts back in will be frivolously spent
  • Socialism can’t work and never has