Today’s episode of government efficiency
A failing, uncompetitive GM has been receiving taxpayer money for the last two years. NASA is having their budget cut at the same time. My last GM product made it about 70,000 miles before it broke down. I read today that NASA’s Voyager 1 vehicle is currently 11 BILLION miles away from earth...and still working fine. It would appear to me that if we are going to give anyone money to be making vehicles…it should be NASA…not GM.
On to more relevant matters
Bernanke speaks
Chairman Bernanke gave a speech on monetary policy to the International Monetary Conference today. For those of you that like the short story here it is:
The job market stinks, there is no inflation, don’t blame the Fed for rising commodities prices, and we’re keeping rates low for a long time.
You can stop reading right here if you are a “just give me the short story” type of person.
For those that want more detail…read on…
The song remains the same
Much of what Bernanke had to say today has been said ad nauseam for the past two years. There are too many people unemployed, and too many have been that way for too long. Housing is in terrible shape. Individuals are reluctant to spend due to all of the pressures they face. Who wants to go blow a bunch of cash on a new TV when they know they could lose their job tomorrow? I love a big screen TV as much as the next guy, but they don’t work too well when you’re forced out to curb. Housing prices have fallen and become more affordable…but the pool of qualified buyers has shrunk tremendously.
The Fed sees a modest recovery underway that was hampered in first quarter by a major disaster in Japan and rising fuel costs. Fuel costs get a lot of attention but Bernanke points out that of the inflation that has shown up recently most of it is attributable to one item…gasoline…and that they expect this to be a transitory issue. The Feds outlook is that gasoline prices will moderate later this year and help fuel growth (no pun intended).
He is somewhat positive on the business sector. As many have noted this year, business spending on equipment and software has been expanding. Firms associated with the export industry have one well.
With regard to the construction industry just envision him putting his palm to his forehead and mumbling something along the lines of “don’t even get me started…” The housing market is in bad shape and will likely remain that way for a while.
There’s no crying in central banking
Bernanke’s speech was 15 pages long. I don’t say this to try to get some sympathy for having to read a 15 page paper on monetary policy…well…I might want a little bit of sympathy…but the main point is that of the 15 pages….a full 6 pages of it were dedicated to discussing commodities prices. Why spend so much time on commodities prices?
It’s always interesting to hear a discussion on the determinants of price performance in the global commodities markets. My wife can wait for me to come home each night with new and exciting stories about emerging markets impacts on global copper supplies. I’m kidding of course…my wife has to use 30 thousand words per day…there is no room in the traffic pattern for my commodities discussions.
Bernanke on the other hand had a lot of room for commodities discussions. He essentially said that emerging market demand along with failure of supply to keep up is the main culprit in the meteoric rise of prices. Furthermore he insinuated that these countries need to stop crying about our domestic monetary policy being to blame for their inflation woes…they each have their own central banks who could…and should…be doing something about their issues. They have the tools necessary…they just need to act.
He went on to point out that while the Feds activities have caused some erosion in the foreign exchange value of the dollar that their policies have not had a material impact on commodities prices. While it is true that a drop in the value of the dollar causes dollar-denominated assets to rise in price, the rate at which the two have moved is not highly correlated. George and I did the same math one day here in the office…if the dollar is off 15% and oil is up 160% it becomes very difficult to argue that the dollar’s drop is causing oil to rise.
Furthermore he points out that monetary policy is not the only factor that affects the FOREX value of the dollar…this fact will reduce even further the impact the Fed has had on commodities prices.
Bernanke concludes:
· Recovery proceeding at moderate pace
· Job situation far from normal
· Inflation up some but should moderate
· Conditions likely to warrant exceptionally low levels of Fed Funds Rate for extended period
· Economy still producing well below its potential
· Accommodative policies still needed
· Won’t consider recovery sustainable until we see “sustained period of stronger job creation”
So…get used to low rates. The end.
If you have any questions or if there is anything I can be doing for you just let me know.
Steve Scaramastro, SVP
800-311-0707
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