Best Santelli Rant in a while..

[Martinghoul]

Quote from Tsing Tao:
Bernanke was the one that made it famous. I don't recall anyone ever referring to Friedman as "Helicopter Milton". Maybe I'm wrong.

The media, in its unhealthy fascination with all things Bernanke, made it famous. Bernanke specifically referred to Milton Friedman's concept of a "helicopter drop" in a speech he delivered in 2002. It really should be "Helicopter Milton", to honor the inventor of the concept.

Well, regarding unemployment, if I were at the Fed, I would seriously push back on that mandate to congress. I would mention that when it was given to the Fed (back in the early 70s? I can't remember and am too lazy to google it) it was essentially a way for Congress to pack the buck. The Fed has no tools to directly affect unemployment, I would argue. That is a fiscal responsibility. I would point out how other central banks don't have that mandate. But if the economy continued to be shit, the only thing I would do is keep rates low (and by low I mean the 1% range) for an extended period. My defense for that would be that inflation was "low" (although I would certainly use my new-found Fed power to argue that CPI is not very accurate any more). At that point, I would tell Congress - and more importantly the American people - that the Fed has done all it's can, and to please call their congressmen/senator and get them to start doing their job. for the Fed to go further would be inherently dangerous to them, their savings and the future economic power of the United States. And lastly, I would once more reiterate that the Fed is NOT in business to monetize and finance the debt of Washington DC.

But you need to also accept that if I had let all those TBTF banks explode, we'd be in a world of hell for a short while, but once the system cleansed itself and bad debt was erased (not papered over) then the system would once again be healthy again and we might just follow an Iceland path, rather than a Greek or Spanish one.

Yep, makes sense. However, as we know, it would take a VERY long time for Congress to change the Fed mandate. Moreover, let me try to concentrate on your latter point. Suppose you did let the banks explode and ended up in a world of hell. I understand that your central scenario is that it would be a short-lived episode of hell, followed by Iceland-style recovery. However, if I asked you to put a probability on this period of hell lasting a decade, causing unemployment to go up to 25%, various social consequences etc, what would your estimate be?

Did you see Bernanke's testimony this morning? The guy is completely lost. He doesn't know what to do anymore. Dove one minute, hawk the next, the beatings will continue until morale improves! He's hoping to stall everyone until he can GTFO in 2014.

Personally, I don't think he's lost. I think he's just trying to "manage" the yields (seems like 10y at 2.75 is too high; my guess is 10y at 2.20 is too low).

 

[Martinghoul]

Quote from Tsing Tao:
In other "the economy is improving" news,

<blockquote class="twitter-tweet"><p>Housing permits just posted their largest miss... in history.</p>&mdash; govttrader (@govttrader) <a href="https://twitter.com/govttrader/statuses/357488984315789312">July 17, 2013</a></blockquote>

Yeah, it's disappointing, agreed... If this continues, I may have to rethink my thesis.

 

[Tsing Tao]

Quote from Martinghoul:

The media, in its unhealthy fascination with all things Bernanke, made it famous. Bernanke specifically referred to Milton Friedman's concept of a "helicopter drop" in a speech he delivered in 2002. It really should be "Helicopter Milton", to honor the inventor of the concept.

Perhaps, but we will never know.

Quote from Martinghoul:


Yep, makes sense. However, as we know, it would take a VERY long time for Congress to change the Fed mandate. Moreover, let me try to concentrate on your latter point. Suppose you did let the banks explode and ended up in a world of hell. I understand that your central scenario is that it would be a short-lived episode of hell, followed by Iceland-style recovery. However, if I asked you to put a probability on this period of hell lasting a decade, causing unemployment to go up to 25%, various social consequences etc, what would your estimate be?

I would put a very low probability on that, as long as the right decisions were made to cleanse the system. A few missteps and we'd be sitting in the same malaise we are now. Sure, stock markets are frothy, but the average citizens isn't better off. I read (and have quoted) an article a while back that asked if you would be better off throwing up for 6 months straight, or being nauseous for 20 years. Personally, I'd choose throwing up.

Quote from Martinghoul:


Personally, I don't think he's lost. I think he's just trying to "manage" the yields (seems like 10y at 2.75 is too high; my guess is 10y at 2.20 is too low).

That's because you're a Fed cheerleader

He didn't expect the "taper" talk to have such an impact on rates like it did (though mostly everyone else obviously did). Now he's worried what will happen when he has to execute an exit strategy (or he won't, and let the next guy worry about it is my guess). If just a whisper did what we saw, I can't imagine what will happen if the Fed someday actually does an exit.

 

[Ricter]

Before you decide to "sell low", Martin...

Housing Starts in U.S. Unexpectedly Fall to Lowest in a Year
By Jeanna Smialek
July 17, 2013

"Starts (NHSPSTOT) of new U.S. homes unexpectedly fell in June to the lowest level in almost a year, indicating a pause in the industry’s progress.

"Work began on 836,000 houses at an annualized rate last month, the least since August 2012 and down 9.9 percent from a revised 928,000 pace in May, figures from the Commerce Department showed today in Washington. The reading was weaker than projected by any economist in a Bloomberg survey, and permits for future projects also declined.

"The decline was led by a slump in multifamily projects, which can be volatile, and the level of permits remained higher than starts, which may point to a rebound this month. A limited supply of land is also a hurdle for housing, even as near record-low mortgage rates and improving job opportunities draw buyers.

“As construction ramps up, we’re bound to have some hiccups along the way,” said Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. Having called for 915,000 starts, Lebas had the lowest estimate in the Bloomberg Survey. “ I don’t think this one data point is immediately concerning. The housing markets are going to be a driver of economic growth.”

"Single Family

"Construction of single-family houses fell 0.8 percent to a 591,000 rate, the fewest since November, from 596,000 the prior month.

"Work on multifamily projects such as apartment buildings slumped 26.2 percent to an annualized rate of 245,000, the lest since August 2012.

"All four regions had a decrease in starts last month, led by a 12.1 percent drop in the Northeast and a 12 percent decline in the South.

"Unusually wet weather may have played a role. Last month marked the 13th wettest June on record for the contiguous U.S., according to the National Oceanic and Atmospheric Administration.

"The Ohio Valley and East Coast were much wetter than normal. Eighteen states -- from Georgia to Maine, registered rain totals that ranked among their 10 wettest. New Jersey and Delaware had their wettest Junes on record. At the same time, the West had below-average precipitation.

"Gaining Confidence

"The drop in activity last month came even as builders gained confidence. The National Association of Home Builders/Wells Fargo sentiment index climbed to 57 in July, the highest in seven years, from a revised 51 a month earlier, the Washington-based group reported yesterday. The gauge has climbed 13 points in the latest two months, the biggest back-to-back advance since January-February 1992.

"AV Homes Inc (AVHI). is seeing “increased demand driven by recovery in the household formation, employment, and record affordability,” chief executive officer Roger A. Cregg said in a June 19 teleconference. " More>>

 

[Martinghoul]

Quote from Tsing Tao:
I would put a very low probability on that, as long as the right decisions were made to cleanse the system. A few missteps and we'd be sitting in the same malaise we are now. Sure, stock markets are frothy, but the average citizens isn't better off. I read (and have quoted) an article a while back that asked if you would be better off throwing up for 6 months straight, or being nauseous for 20 years. Personally, I'd choose throwing up.

When you say "very low", what numbers are we talking about here? 10%? 5%? Very close to 0%?

And yeah, using your (or the article's) metaphor makes some sense, except I am wondering about the 3rd possibility here. What if (and let's assume it's a low probability outcome), your ailment was some horrendous bowel cancer and you ended up needing to have half of your digestive system removed and to carry a colostomy bag arnd?

 

[Martinghoul]

Quote from Ricter:
Before you decide to "sell low", Martin...
...

Nah, I wasn't going to pull the trigger or anything like that... I don't normally react to a single piece of data. Still, like I said, if the soft data continues and we see weakness in the other stuff that I follow and find significant (e.g. claims, NFIB, etc), I may have to admit that my thesis is incorrect.

 

[Tsing Tao]

Quote from Martinghoul:

When you say "very low", what numbers are we talking about here? 10%? 5%? Very close to 0%?

And yeah, using your (or the article's) metaphor makes some sense, except I am wondering about the 3rd possibility here. What if (and let's assume it's a low probability outcome), your ailment was some horrendous bowel cancer and you ended up needing to have half of your digestive system removed and to carry a colostomy bag arnd?

WTF is this? What if aliens landed and suddenly agreed to buy up all our debt for gold bars?

 

[Martinghoul]

Quote from Tsing Tao:
WTF is this? What if aliens landed and suddenly agreed to buy up all our debt for gold bars?

That was my attempt to frame the question I asked in the preceding post using your proposed metaphor. If you're not inclined to agree with the way I (ab)used it, it's fine, I don't insist on the specifics.

Can you give me a probability estimate, though?

 

[Tsing Tao]

Quote from Martinghoul:

That was my attempt to frame the question I asked in the preceding post using your proposed metaphor. If you're not inclined to agree with the way I (ab)used it, it's fine, I don't insist on the specifics.

Can you give me a probability estimate, though?

You want me to give you a probability estimate of what percentage the economy might not get better, using a hypothetical model where I was the Fed head, and got everything I want, without Congress fighting me, etc?

LOL...what is my acceptable margin of error?

Why don't you just get to your next question instead of making me come up with some arbitrary number? Slim chance. Maybe 2-5%, if that matters to you.

If all was done right and bankrupt institutions were allowed to be bankrupt, and the free market took care of everything, we'd certainly be better of at this point than we are now - having fixed nothing.

 

[Ricter]

Quote from Tsing Tao:

You want me to give you a probability estimate of what percentage the economy might not get better, using a hypothetical model where I was the Fed head, and got everything I want, without Congress fighting me, etc?

LOL...what is my acceptable margin of error?

Why don't you just get to your next question instead of making me come up with some arbitrary number? Slim chance. Maybe 2-5%, if that matters to you.

If all was done right and bankrupt institutions were allowed to be bankrupt, and the free market took care of everything, we'd certainly be better of at this point than we are now - having fixed nothing.

Your "certainly" is no more than faith.