Druckenmiller and Trump were right

[EliG]

It doesn't matter if it's Powell or Yellen. Fed chair doesn't set the rates; FOMC does. The "C" in FOMC stands for committee. There are normally 12 members (currently 10) and they all get to vote. Chairman's vote doesn't carry an extra weight. The last vote was unanimous which is not always the case. Even well known doves voted to hike this time.

 

Half of the members are regional bank presidents. They are 100% independent of both Powell and Trump. They are only accountable to their regional boards. Powell can try to persuade them but he can't whip them to vote certain way.

 

This is a good explainer of why personal attacks on Powell don't make any sense:

 

http://nymag.com/intelligencer/2018/12/jerome-powell-trump-fed.html

 

[John Hjorth]

Thank you, Eli,

 

- for contributing to giving this topic direction, with facts!

[rb]

It doesn't matter if it's Powell or Yellen. Fed chair doesn't set the rates; FOMC does. The "C" in FOMC stands for committee. There are normally 12 members (currently 10) and they all get to vote. Chairman's vote doesn't carry an extra weight. The last vote was unanimous which is not always the case. Even well known doves voted to hike this time.

 

Half of the members are regional bank presidents. They are 100% independent of both Powell and Trump. They are only accountable to their regional boards. Powell can try to persuade them but he can't whip them to vote certain way.

 

This is a good explainer of why personal attacks on Powell don't make any sense:

 

http://nymag.com/intelligencer/2018/12/jerome-powell-trump-fed.html

+1. That's what the people don't really understand. It's FMOC that sets policy. Each governor gets one vote. The Chairman is also a governor and gets one vote. Is there some hand wringing behind the scenes? Sure. But not that much, because the Chairman doesn't have the power to get a governor to do shit.

 

As others said. Yellen was more dovish and a brilliant economist. Powell was always more hawkish than Yellen. They've put Powell in charge, so what did they really expect? Shouldn't this be what they wanted? I guess Yellen was no good because she was appointed by Obama, so she had to go.

 

Maybe this post should belong in the politics section. Conservatives wanted to sting up Bernake. They were all bitching about loose money before. But now Trump complains about a rate hike and they're ready to wage jihad against the FED. Apparently, in their view, the right way to run monetary policy is to be tight when the economy is weak and be loose when the economy is doing well. This is why the FED was designed to be independent. Because if the US would run monetary policy the way they run fiscal policy we'd all be fucked.

[rb]

My last post was a bit testy, but our esteemed colleague John, asked for some facts based ideas here. So here it is. The FED doesn't see its job as reacting to inflation in order to bring it down to it's target. It doesn't want it to go out of control in the first place. So they have an idea about capacity and try not to go over it.

 

When it comes to that, at this level of unemployment unless they see a decline in core inflation or a serious jump in productivity the FED is looking for about 100k job creation per month. Above that they'll be in a tightening mood.

[John Hjorth]

It's OK, rb [ :- ) ],

 

Here are some facts & data:

 

Facts:

 

Federal Reserve Bank of New York - Press Release [April 3^rd 2018] : John C. Williams Named President and CEO of New York Fed.

 

That press release actually verbatim confirms what Eli posted about the election process for the regional Federal Reserve banks.

 

Data :

 

Federal Reserve Bank of New York - Liberty Street Economics [December 4^th 2018] : Labor Markets in the Region Are Exceptionally Tight.

 

Presentation.

 

- - - o 0 o - - -

 

[Just as an example. - Data all over the place!]

[meiroy]

Here's my own personal "data":

 

1. Fed members are human beings.

2. These people have incentives, political ideas, and biases.

3. Sometimes, their decisions are directly linked to political events, see Yellen's decision not to raise rates when she should have.

4. The Fed chairman has a significant influence on the other members. Either directly or by providing their view to the public in advance.  The chairman's impact in the real world is far greater than just being one vote of several.

 

Imagine, if you will, that before the previous vote, Powell would go on TV stating that there should be a pause. He would then start the meeting by declaring there should be a pause.  You can bet that such actions would flip some votes. That's the way it works.

 

"My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation," -- Yellen

 

5. They have shown time and time again they do not really understand how the economy works. They just play with the models they learned in school.

 

6. The natural state of the market is disequilibrium. This is something the Fed will never accept.  Which is why they end up creating worse bubbles and recessions.

 

And I'm saying this as someone who thinks the institutions, the institutional capital, is what makes America great.

 

 

 

[Dalal.Holdings]

6. The natural state of the market is disequilibrium. This is something the Fed will never accept.  Which is why they end up creating worse bubbles and recessions.

 

The chronic meme of "the economic (boom/recession) would have been much shallower if only the Fed had (raised/lowered) rates by x months by Monday morning quarterbacks (usually "macro" traders like Druck or CNBC commentators like Cramer) is amusing. Just sum it down to: "everything bad in the economic cycle is the Fed's fault".

 

If you want "real data", look at the United States before the Fed existed on Wikipedia (they used to call them Panics for a reason):

 

Panic of 1907

The Panic of 1907 – also known as the 1907 Bankers' Panic or Knickerbocker Crisis[1] – was a United States financial crisis that took place over a three-week period starting in mid-October, when the New York Stock Exchange fell almost 50% from its peak the previous year. Panic occurred, as this was during a time of economic recession, and there were numerous runs on banks and trust companies. The 1907 panic eventually spread throughout the nation when many state and local banks and businesses entered bankruptcy. Primary causes of the run included a retraction of market liquidity by a number of New York City banks and a loss of confidence among depositors, exacerbated by unregulated side bets at bucket shops.[2

 

Panic of 1901

The Panic of 1901 was the first stock market crash on the New York Stock Exchange, caused in part by struggles between E. H. Harriman, Jacob Schiff, and J. P. Morgan/James J. Hill for the financial control of the Northern Pacific Railway.

 

Panic of 1896

The Panic of 1896 was an acute economic depression in the United States that was less serious than other panics of the era, precipitated by a drop in silver reserves, and market concerns on the effects it would have on the gold standard. Deflation of commodities' prices drove the stock market to new lows in a trend that began to reverse only after the 1896 election of William McKinley.

 

Panic of 1893

The Panic of 1893 was a serious economic depression in the United States that began in 1893 and ended in 1897.

 

Panic of 1884

The Panic of 1884 was an economic panic during the Depression of 1882-85. Gold reserves of Europe were depleted, and the New York City national banks, with tacit approval of the United States Treasury Department, halted investments in the rest of the United States and called in outstanding loans. A larger crisis was averted when New York Clearing House bailed out banks in risk of failure. Nevertheless, the investment firms Grant & Ward, Marine Bank of New York, and Penn Bank of Pittsburgh failed along with more than 10,000 small firms.

 

The list goes on (and on)...

 

So if you want to argue that the Fed makes things worse, please provide data of similar caliber.

 

Can't wait until historians write about the Fed induced great economic crash of 2018 where the S&P sold off (almost) 20% from all-time-highs and nearly everyone who wanted a job had one...

[SHDL]

So if you want to argue that the Fed makes things worse, please provide data of similar caliber.

 

I think the general consensus is that the Fed made the Great Depression worse by (effectively) tightening when they should have loosened.  But of course they learned from that mistake and did much better after the GFC. 

 

Another big failure was letting inflation run too hot starting in the mid 60s, which they finally managed to put an end to in the early 80s but not without painful side effects.  I imagine this is something the Fed is now trying hard to avoid. 

 

So it’s not like the Fed haters have absolutely nothing to support their opinions.  Personally, however, I am not as negative because I think they deserve credit for learning from their past mistakes. 

[no_free_lunch]

 

So if you want to argue that the Fed makes things worse, please provide data of similar caliber.

 

 

I actually realized that I made a mistake when I posted before.  The US stock market did 7% from 1871 to 1913, including all of your panics that you are panicking about.  There was actually price deflation this entire period.  Investors did very well.

 

From 1913 to today, the US stock market did about 6.6%.  I will call that a rounding error and say it was about the same.

 

I don't think anyone needs to prove the fed made things worse.  Prove they made things better.  If you can't why don't we just revert back to a more natural state.  Why do we keep rolling the dice with central planning?

[clutch]

6. The natural state of the market is disequilibrium. This is something the Fed will never accept.  Which is why they end up creating worse bubbles and recessions.

 

The chronic meme of "the economic (boom/recession) would have been much shallower if only the Fed had (raised/lowered) rates by x months by Monday morning quarterbacks (usually "macro" traders like Druck or CNBC commentators like Cramer) is amusing. Just sum it down to: "everything bad in the economic cycle is the Fed's fault".

 

If you want "real data", look at the United States before the Fed existed on Wikipedia (they used to call them Panics for a reason):

 

Panic of 1907

The Panic of 1907 – also known as the 1907 Bankers' Panic or Knickerbocker Crisis[1] – was a United States financial crisis that took place over a three-week period starting in mid-October, when the New York Stock Exchange fell almost 50% from its peak the previous year. Panic occurred, as this was during a time of economic recession, and there were numerous runs on banks and trust companies. The 1907 panic eventually spread throughout the nation when many state and local banks and businesses entered bankruptcy. Primary causes of the run included a retraction of market liquidity by a number of New York City banks and a loss of confidence among depositors, exacerbated by unregulated side bets at bucket shops.[2

 

Panic of 1901

The Panic of 1901 was the first stock market crash on the New York Stock Exchange, caused in part by struggles between E. H. Harriman, Jacob Schiff, and J. P. Morgan/James J. Hill for the financial control of the Northern Pacific Railway.

 

Panic of 1896

The Panic of 1896 was an acute economic depression in the United States that was less serious than other panics of the era, precipitated by a drop in silver reserves, and market concerns on the effects it would have on the gold standard. Deflation of commodities' prices drove the stock market to new lows in a trend that began to reverse only after the 1896 election of William McKinley.

 

Panic of 1893

The Panic of 1893 was a serious economic depression in the United States that began in 1893 and ended in 1897.

 

Panic of 1884

The Panic of 1884 was an economic panic during the Depression of 1882-85. Gold reserves of Europe were depleted, and the New York City national banks, with tacit approval of the United States Treasury Department, halted investments in the rest of the United States and called in outstanding loans. A larger crisis was averted when New York Clearing House bailed out banks in risk of failure. Nevertheless, the investment firms Grant & Ward, Marine Bank of New York, and Penn Bank of Pittsburgh failed along with more than 10,000 small firms.

 

The list goes on (and on)...

 

So if you want to argue that the Fed makes things worse, please provide data of similar caliber.

 

Can't wait until historians write about the Fed induced great economic crash of 2018 where the S&P sold off (almost) 20% from all-time-highs and nearly everyone who wanted a job had one...

 

I don't have a strong opinion about Fed one way or another... but if you want to disapprove the hypothesis that Fed makes things worse, you shouldn't provide evidence on how things were bad before Fed. It's like showing how many people starved to death before communism in Russia to disapprove the point that communism made Russia worse.  ::)

[Dalal.Holdings]

 

So if you want to argue that the Fed makes things worse, please provide data of similar caliber.

 

 

I actually realized that I made a mistake when I posted before.  The US stock market did 7% from 1871 to 1913, including all of your panics that you are panicking about.  There was actually price deflation this entire period.  Investors did very well.

 

From 1913 to today, the US stock market did about 6.6%.  I will call that a rounding error and say it was about the same.

 

I don't think anyone needs to prove the fed made things worse.  Prove they made things better.  If you can't why don't we just revert back to a more natural state.  Why do we keep rolling the dice with central planning?

 

Lol.. the U.S. “stock market” was in its infancy during that time. Stock return comparison not exactly apples to apples.

 

What really matters and what real PANIC is: when you are lining up at your bank not sure if your checking/savings account money will be there when you get to the teller. You can thank the Fed that you don’t know what real panic is.

 

The reason you think “Panic = 20% decline in stocks” is thanks to the Fed.

[no_free_lunch]

No, that's a data point dalal.  You are going to have to deal with it.

 

Here is another one, us real GDP grew 4% per year 1871 to 1913.  From 1913 to today it has averaged 3%.

[no_free_lunch]

Also, on the bank runs, I don't think the federal reserve is needed there.  Isn't that what FDIC is for?

[Guest Schwab711]

What's the composition of the S&P500 before 1957?

[Dalal.Holdings]

No, that's a data point dalal.  You are going to have to deal with it.

 

Here is another one, us real GDP grew 4% per year 1871 to 1913.  From 1913 to today it has averaged 3%.

 

The original conversation referred to depth of recessions and magnitude of bubbles (peaks and valleys) being worsened by Fed. There was no discussion on stock returns or even GDP growth over long periods. My only argument is that the Fed made cycles less intense on the ups and downs, not more.

 

If you want to argue about Fed and gdp or stock market impact, you’ll have to find someone else to discuss this with because I don’t have a strong opinion on that.

[shalab]

Well written.

 

John Hjorth thinks the Fed's job is to loosen labor markets - that is not its mandate.

 

https://www.investopedia.com/articles/investing/100715/breaking-down-federal-reserves-dual-mandate.asp

 

Furthermore, EU should have the same rate of 2 - 2.5% as the US as they have similar economic growth as the U.S, but they have their rates at 0%.

 

https://tradingeconomics.com/european-union/gdp-annual-growth-rate

 

 

50% chance of a rate cut next year:

 

https://www.cnbc.com/2018/12/26/guggenheim-theres-a-50percent-chance-the-fed-reverses-cuts-rates-next-year.html

 

Potential rate cut in 2019 and low economic growth in 2019:

 

https://www.cnbc.com/2018/12/27/jim-paulsen-expect-slow-growth-rates-cut-and-a-bull-run-in-2019.html

 

 

Cramer on Fed chairman:

 

https://www.cnbc.com/2018/12/27/cramer-says-the-fed-is-recklessly-confusing-the-stock-market.html

 

 

 

 

 

Here's my own personal "data":

 

1. Fed members are human beings.

2. These people have incentives, political ideas, and biases.

3. Sometimes, their decisions are directly linked to political events, see Yellen's decision not to raise rates when she should have.

4. The Fed chairman has a significant influence on the other members. Either directly or by providing their view to the public in advance.  The chairman's impact in the real world is far greater than just being one vote of several.

 

Imagine, if you will, that before the previous vote, Powell would go on TV stating that there should be a pause. He would then start the meeting by declaring there should be a pause.  You can bet that such actions would flip some votes. That's the way it works.

 

"My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation," -- Yellen

 

5. They have shown time and time again they do not really understand how the economy works. They just play with the models they learned in school.

 

6. The natural state of the market is disequilibrium. This is something the Fed will never accept.  Which is why they end up creating worse bubbles and recessions.

 

And I'm saying this as someone who thinks the institutions, the institutional capital, is what makes America great.

[Spekulatius]

No, that's a data point dalal.  You are going to have to deal with it.

 

Here is another one, us real GDP grew 4% per year 1871 to 1913.  From 1913 to today it has averaged 3%.

 

The growth comparison during the period and 1913 until today is irrelevant. All 1st world countries show lower growth as they come of a higher base and also be sure population growth has slowed. We simply don’t habe the growth today that we had 100 years ago in any 1st world country.

[meiroy]

 

OK, just to be clear, I am not a "Fed hater".  I think the U.S. institutions are crucial and important, starting with those that support the rule of law. I just think there is certain economic thinking which is false and has proven itself to be false more than once, that's all.  Economics is not an exact science, that's life. Shall I start quoting Buffett about inflation and how to deal with trade? :)

 

 

[meiroy]

No, that's a data point dalal.  You are going to have to deal with it.

 

Here is another one, us real GDP grew 4% per year 1871 to 1913.  From 1913 to today it has averaged 3%.

 

The growth comparison during the period and 1913 until today is irrelevant. All 1st world countries show lower growth as they come of a higher base and also be sure population growth has slowed. We simply don’t habe the growth today that we had 100 years ago in any 1st world country.

 

I would not even go there.  You'd have so many data points to compare.  How about women participation in the workforce? When did that really start? There's bretton woods, and Fiat money and globalization etc.

 

[Cigarbutt]

https://www.project-syndicate.org/commentary/federal-reserve-right-to-raise-interest-rates-by-stephen-s--roach-2018-12

https://fred.stlouisfed.org/series/EMRATIO

 

Happy 2019 to all.

[John Hjorth]

... John Hjorth <fixed my last name here, John> thinks the Fed's job is to loosen labor markets - that is not its mandate. ...

 

Shalab,

 

Interesting discussion technique here. Are you trying to tell me what I think, or what? - Or are you just deeply condescending? [,- on a professional level for an economist [, which I actually happen to be.]]

[shalab]

Sorry, fixed your name.

 

Yes, that is what I thought of your thought process from the link you posted - if not, what is your thinking?

 

Federal Reserve Bank of New York - Liberty Street Economics [December 4th 2018] : Labor Markets in the Region Are Exceptionally Tight.

 

 

... John Hjorth <fixed my last name here, John> thinks the Fed's job is to loosen labor markets - that is not its mandate. ...

 

Shalab,

 

Interesting discussion technique here. Are you trying to tell me what I think, or what? - Or are you just deeply condescending? [,- on a professional level for an economist [, which I actually happen to be.]]

[John Hjorth]

Shalab,

 

Thanks.

 

I think I actually haven't expressed any opinion yet in this topic, so far, if you ask me. [About if FOMC has made a mistake with the last rate hike, or not.] So please consider me the glowing doubt on that as of yet. In this topic, personally, I'm [more or less desperately] seeking input in this topic to make a judgement on that - data driven input - for discussion & evaluation.

 

Today, I came across of this: Bloomberg Markets [December 27^th 2018] : Traders Face New Landscape With Powell at Microphone After Every Fed Meeting - More flexibility? - perhaps both with regard to communication, & mentally?

[shalab]

Thx for clarifying. I picked up a bunch of assets this past week - may be I should thank the Fed.

 

Here is the foreign currency rates - one can't keep hiking rates unilaterally when the main trading partners currencies are dropping in value with similar or better economic growth.

 

USD/CAD

https://www.bloomberg.com/quote/USDCAD:CUR

 

EUR/USD

https://www.bloomberg.com/quote/EURUSD:CUR

 

USD/CNY

https://www.bloomberg.com/quote/USDCNY:CUR

 

Shalab,

 

Thanks.

 

I think I actually haven't expressed any opinion yet in this topic, so far, if you ask me. [About if FOMC has made a mistake with the last rate hike, or not.] So please consider me the glowing doubt on that as of yet. In this topic, personally, I'm [more or less desperately] seeking input in this topic to make a judgement on that - data driven input - for discussion & evaluation.

 

Today, I came across of this: Bloomberg Markets [December 27^th 2018] : Traders Face New Landscape With Powell at Microphone After Every Fed Meeting - More flexibility? - perhaps both with regard to communication, & mentally?

[Gregmal]

I couldn't help but think of the hilarity that was ensuing all but a month ago and the panic that took place. Yes even here, where you'd think people had better temperament and ability to ignore the noise, chaos ensued.

 

An entire year's worth of returns were there for the taking; to be had in a couple weeks, if one just read the situation properly.