by Mish

Also in attendance were Larry Summers, Paul Volcker, and potentially the next Fed Chair, ex Fed-Governor Kevin Warsh.

Edwards’ email comments on Warsh and Summers ring a bell with me.

I was the first speaker and afterward I enjoyed listening to every other speaker at the two-day event. Most notable of the outside economics speakers were Paul Volker, Larry Summers, and most significantly for me, ex Fed-Governor Kevin Warsh. Much to my own regret, I had never familiarised myself with the views of Governor Warsh, who was at the Fed from 2006-11, and played a key role in navigating the Fed through the crisis. He got a rousing reception from the BCA audience as he talked a lot of sense – in particular on how the Yellen Fed has lost its way and current policy is deeply flawed. He explained that the Fed has been “captured” by a groupthink of academics led by the ‘Secular Stagnation’ ideas of his friend, Larry Summers. Rather than admitting they are wrong, this group, who failed to predict the current economic malaise, have constructed this theory to explain why ever more stimulus is required. In particular, Warsh warned that the Fed had become the slave of the S&P.
Summers’ relaxed view on the debt build-up, particularly visible in the corporate sector, is in sharp contrast with our own view that this looks set to wreck the US economy.
The problem with Summers’ analysis in my view is that it is the higher debt that is being used to push up asset values (via share buybacks), just as it did during the housing bubble in 2005-7. And by pushing asset values well beyond fundamentals you build debt structures on false asset values, which only become apparent when the asset bubble bursts. And am I in any way reassured that the Fed sees no bubbles? No, I am not. These dudes will never identify an asset bubble – at least before the event!

RECOMMENDED ARTICLES

Median Leverage Ratios

Image placeholder title

Here we are once again, only this time higher.

Mike “Mish” Shedlock

Central Bank Hubris Bubbles to the Surface

Albert Edwards at Society General commented today on Central Bank Hubris, deflation, and the flattening of the US yield curve. Here are some email snips.

Financial Engineering Chart of the Day: Fed Balance Sheet vs. S&P 500

I was playing around with some ideas on the St Louis Fed “Fred” database and came up with this.

Fed's Core Mission Now Includes Climate Change

The Fed, ECB, Bank of England, and Bank of Japan have now embraced climate change as part of their mission.

GDPNow 2.5%, NY Fed Nowcast 1.7%; Huge Discrepancies: Why?

The New York Fed released its GDP “Nowcast” today. The New York Fed model expects 1.7% seasonally adjusted annualized (SAAR), a jump of 0.5 percentage points from last week.

Albert Edwards on Trump's Legacy:15% Deficits then a Deflationary Bust

Albert Edwards at Society General does not have kind words for Trump's stimulus package.

Citizens Will Soon Turn their Rage Towards Central Bankers

Via Email, I received an interesting article from Albert Edwards at Societe Generale. Edwards claims citizens will soon turn their rage towards Central Bankers.

Hussman: "I Expect the S&P 500 to Lose 2/3 of Its Value"

There are bears and then there are bears. Hussman claims he is not a PermaBear, no matter how he sounds.

Are Stocks Cheap? Diving Further Into the Russell 2000, S&P 500, and Nasdaq P/E Ratios

I am quite sure I have missed other creative measures spewed out by market analysts promoting the message “stocks are cheap”.

Gap-and-Crap Comparison: Spain Ibex vs. S&P 500

Inquiring minds just may be interested in a gap-and-crap comparison of the the S&P; 500 index, the Spain Ibex index, and the Euro.