An unbelievable display of hubris and idiocy was on display today at the Press Club:
Good afternoon. I am pleased to be here at the National Press Club, and I'm especially glad for the opportunity to have a conversation with journalists who write about economic policy from our nation's capital. Your job is not easy, but it is essential. Virtually every American is affected by developments in the economy and in economic policy. But contemporary economic issues can be highly complex, and few nonspecialists have the time or the background to master these issues on their own. The public must therefore rely on the diligent reporting, clear thinking, and lucid writing of reporters determined to go beyond dueling bumper stickers and sound bites to help people understand what they need to make good decisions, both in their personal finances and at the polls. These are weighty responsibilities, and the journalists I know take them very seriously.
First, pander to the audience. This is how you butter them up when you're going to lie.
A wide range of market indicators supports the view that the Federal Reserve's securities purchases have been effective at easing financial conditions. For example, since August, when we announced our policy of reinvesting maturing securities and signaled we were considering more purchases, equity prices have risen significantly, volatility in the equity market has fallen, corporate bond spreads have narrowed, and inflation compensation as measured in the market for inflation-indexed securities has risen from low to more normal levels.
Let's just focus on this one statement.
Bernanke says that the increase in the stock market is a sign that his policies are working to "ease financial conditions."
Ok, let's say I accept that.
Then we should see, in addition to equity prices rising, that the amount of leverage in the corporate market in relationship to those equity prices is falling.
That is, corporations should be a better value than they were before this policy was introduced. Corporations should be able to build their balance sheets and acquire assets of various forms, including cash, while reducing debt outstanding. The value represented by one dollar of stock should thus rise in absolute terms, irrespective of speculation.
We can test this, using only Bernanke's own data. We do it using the Corporate Leverage Index. That is, how many dollars of stock do you have to buy in order to acquire one dollar of tangible assets less outstanding debt? The data is all from The Fed's own Z1, the Flow of Funds report that they produce quarterly.
I happen to have that chart handy, as it's one of the indicators I track on a regular basis. Let's look at the last few years:
I'm not impressed. Indeed, I'll go so far as to say that Bernanke's claims are an outright lie.
In 2007-2008, in fact all the way up to 2009, we had very high leverage. It should have come down when the markets crashed had businesses actually built strength, much as it did after the peak in 2000, when corporate leverage declined from about 7 to roughly 4 over the next couple of years. Notice that even though stock prices rose strongly from 2003 to 2007, corporations actually built balance sheets during that time, and the leverage they took at the outset of the increase in prices was both modest and short-lived.
This is decidedly not true this time. In fact, in contrast with 2007, when leverage was at 4 (that is, you had to put in $4 to get $1 of actual tangible value) you now have to put in $12 to get that same one dollar of value.
This change in corporate leverage came only after QE began. It in fact began in the first quarter of 2009, when the first "Quantitative Easing" program was introduced. From that point onward corporate leverage has skyrocketed, and now stands at three times where it was before the "QE" games began.
Worse, this chart only goes through the third quarter of 2010. Since stock prices are higher now than then, the leverage index is likely much higher today, but we won't have the data until the new Z1 is released.
You can argue that higher stock prices are "good" if you wish, but I will respond that they're only good if they represent actual value. When they represent speculative froth we call that a bubble, and bubbles are not good, they're bad.
They're a scam and one that eventually always will collapse, leaving those who are foolish enough to be in stocks at the wrong instant in time to suffer extraordinary losses.
Just like they did in stocks in 2000, and in houses in 2007.
No Ben, the increase in stock price does not tell us that the economy is getting healthier or that corporations are doing better. In point of fact they're doing worse, and you're paying more now than ever before for a dollar of actual hard value in stocks. You have to look at the value of an asset, not it's price, to determine whether you're buying something of intrinsic value or you're simply buying because you think you can sell to a bigger sucker, just as with Tulips or PETS.COM.
The current equity bubble makes the 2000 Nasdaq bubble look like a piker, and the level of risk in the market right now is nearly double what was present in the first quarter of 2000.
To the National Press Club: Bernanke is playing you like a fiddle.
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Market Ticker content may be reproduced or excerpted online provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media. Comments....... User: Not logged on Login Register Top Blog Top Blog Topics FAQ Showing Page 1 of 2 First12Last User Info Bernanke: Does He Really Think We're This Dumb? in forum [Market-Ticker] Dashingdwl Posts: 6533 Incept: 2007-06-26 los angeles Of course he thinks we're that dumb. And he is 100% correct. Only a handful of people understand or even care. Seriously, it is less than 1/2% of the entire US population that even care, much less understand, what Ben Bernanke is doing. Rally on. My 401K is up. Stock market is roaring.Leverage? Until there is a crisis for corporate debt, no one cares. Interest rates are all time lows and good companies can borrow all they want or need. They will roll over their floating rate senior debt with fixed income at the drop of a hat and at GREAT rates; best year ever in terms of corporate debt issuance last year.Most people think Ben, Obama is doing a great job. No one rails on Geithner anymore either.Jobs will be coming. Talking heads on the TV say "all is well" and "worst is behind us" 24/7/365. All Good. ---------- Think Green Tip."Thanks to the action we have taken a 2nd Great Depression is no longer a possibility..."President Obama 2011-02-03 15:10:38 Permalink Bertdilbert Posts: 402 Incept: 2008-12-22 CA Bonds compete with the stock market. If Bernanke pushes interest rates down, and scrambles everyone out to look for a return on their money, this is what you get. But worse, all the pension money being invested today, is going in to an inflated stock market. This is not going to give them a good long term return on their money. Since tax payers will be on the hook for the pension shortfalls, this becomes a future deferred liability to your paycheck. Or someone expecting a pension holding the Bernanke bag. One or both will happen. ---------- You could actually win an argument with Karl Denninger, just so long as there were ground rules. The first ground rule being that facts could not be allowed to come into play. 2011-02-03 15:15:54 Permalink Tdray Posts: 168 Incept: 2008-12-11 2000 - Stocks2007 - Houses2011 - Governments? 2011-02-03 15:16:51 Permalink Bluebird Posts: 951 Incept: 2008-05-02 Bernanke isn't talking to those of us who pay attention. We know what is going on. Rather Bernanke is speaking to those other people to instill confidence that his policies are working. And the stock market is going up again, it's all good! Nothing to worry about. If Bernanke loses the confidence of those other people, the game is over.edit to fix spelling
Last modified: 2011-02-03 15:20:04 by bluebird 2011-02-03 15:17:25 Permalink Tm22721 Posts: 715 Incept: 2008-01-09 So long as Bernanke can export our problems to ROW all is good. ---------- Andrew Mellon said in 1932 "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate to purge the rottenness out of the system. High costs of living and high living will decline. People will work harder, values will be adjusted, enterprising people will pick up from the less competent." 2011-02-03 15:45:32 Permalink Sponsored Ad End_the_bubbles Posts: 4752 Incept: 2009-03-25 Madmaxville, (Los Angeles area) Bernanke is really playing an incredibly dangerous ****ing game here. He's telling the public that it's safe to be in this rigged fake cesspool of a "market" where prices are not really anchored to anything other than pumping and CONfidence. I can't believe this **** is happening AGAIN, even though I've been saying I expected it for a while now. THE MOTHER OF ALL BUBBLES! It's almost like they can't even hold this market back from bounding higher & higher every ****ing day!Why not just send people money directly instead of forcing people to gamble in this bull**** market which really only makes the rich even richer and allows the crooks to extract even more of the nation's "wealth" and put it in their own pockets.This really is total lunacy!It's time to start calling for this guys head! Bens head here ---------- SCAMerica® - We put the CON in economy.Alan GreedSCUM: "The Financial System Is Broke""Common Sense" & "Common Courtesy" are UNCOMMON!Hope is for Dopes® 2011-02-03 15:46:49 Permalink Themortgagedude Posts: 5661 Incept: 2007-12-17 saint louis Included in my letter to the Fed President here in St Louis. I'm getting to where I like mailing to him.At his home address.Bwahaaaaaaa ---------- I need my bat. I think better with my bat. Where's my bat? 2011-02-03 15:59:10 Permalink Joejohns Posts: 134 Incept: 2010-09-09 I don't turn on the tv or radio anymore if I know that "thing" is on the air.Just BTFD and sell it back to them and hope you are out 10 days too soon.Big deal, the guy admitted the stock market would provide a wealth boost and then set out to ramp it and ..... so what! 2011-02-03 16:03:15 Permalink Bshj Posts: 249 Incept: 2007-08-07 Near Huntsville Texas - Execution Capital I believe! (and I bought more TZA today) but that is probably a guarantee for at least 1350 on the SPX soon (just had to say that for the record)
Last modified: 2011-02-03 16:13:13 by bshj Reason: corrected symbol 2011-02-03 16:12:35 Permalink Yaldor Posts: 2369 Incept: 2008-05-17 Well we know now: the Fed IS the PPT ---------- For every crash the probability of someone showing that he predicted it is near 1 . For every prediction of an imminent crash the probability of it being correct is almost zero 2011-02-03 16:20:54 Permalink Dashingdwl Posts: 6533 Incept: 2007-06-26 los angeles Wonder what Rand and Ron Paul are saying? My guess is nothing (cause they own stocks too). ---------- Think Green Tip."Thanks to the action we have taken a 2nd Great Depression is no longer a possibility..."President Obama 2011-02-03 16:24:36 Permalink Sponsored Ad Throxxofvron Posts: 7847 Incept: 2009-02-17 Hyper-Speculative Psycho-Facsistic Parabolic Blow-Off Online Quote:In fact, in contrast with 2007, when leverage was at 4 (that is, you had to put in $4 to get $1 of actual tangible value) you now have to put in $12 to get that same one dollar of value.This change in corporate leverage came only after QE began. It in fact began in the first quarter of 2009, when the first "Quantitative Easing" program was introduced. From that point onward corporate leverage has skyrocketed, and now stands at three times where it was before the "QE" games began.Worse, this chart only goes through the third quarter of 2010. Since stock prices are higher now than then, the leverage index is likely much higher today, but we won't have the data until the new Z1 is released.You can argue that higher stock prices are "good" if you wish, but I will respond that they're only good if they represent actual value. When they represent speculative froth we call that a bubble, and bubbles are not good, they're bad. They're a scam and one that eventually always will collapse, leaving those who are foolish enough to be in stocks at the wrong instant in time to suffer extraordinary losses.Price is NOT a reflection of Value.Bernanke IS getting some crazy kind of 'inflation' -something strangely like inflation in Equities Prices and Raw Commodities Prices.Interest rates still totally suck for Savers though...How exactly all this helps Investors or Savers or Consumers has not been disclosed to Me...It sounds to Me like Investors are getting less value for Investing their Dollars.It sounds to Me like Savers are getting less value for Depositing their Dollars.It sounds to Me like Consumers are getting less value for Spending their Dollars.It almost sounds like Bernanke is actually just devaluing the Dollar by leveraging the FED Balance Sheet and Monetizing Hundreds of Billions of .GOV Deficit Spending and Defaulted Private Bank Debt Instruments... ---------- DIONYSUS: " Thou hast no knowledge of the life thou art leading; thy very existence is now a mystery to thee. " -from 'The Bacchantes' By Euripides “During times of universal deceit, telling the truth becomes a revolutionary act.” -George Orwell
Last modified: 2011-02-03 16:34:02 by throxxofvron 2011-02-03 16:31:12 Perm
An unbelievable display of hubris and idiocy was on display today at the Press Club:
Good afternoon. I am pleased to be here at the National Press Club, and I'm especially glad for the opportunity to have a conversation with journalists who write about economic policy from our nation's capital. Your job is not easy, but it is essential. Virtually every American is affected by developments in the economy and in economic policy. But contemporary economic issues can be highly complex, and few nonspecialists have the time or the background to master these issues on their own. The public must therefore rely on the diligent reporting, clear thinking, and lucid writing of reporters determined to go beyond dueling bumper stickers and sound bites to help people understand what they need to make good decisions, both in their personal finances and at the polls. These are weighty responsibilities, and the journalists I know take them very seriously.
First, pander to the audience. This is how you butter them up when you're going to lie.
A wide range of market indicators supports the view that the Federal Reserve's securities purchases have been effective at easing financial conditions. For example, since August, when we announced our policy of reinvesting maturing securities and signaled we were considering more purchases, equity prices have risen significantly, volatility in the equity market has fallen, corporate bond spreads have narrowed, and inflation compensation as measured in the market for inflation-indexed securities has risen from low to more normal levels.
Let's just focus on this one statement.
Bernanke says that the increase in the stock market is a sign that his policies are working to "ease financial conditions."
Ok, let's say I accept that.
Then we should see, in addition to equity prices rising, that the amount of leverage in the corporate market in relationship to those equity prices is falling.
That is, corporations should be a better value than they were before this policy was introduced. Corporations should be able to build their balance sheets and acquire assets of various forms, including cash, while reducing debt outstanding. The value represented by one dollar of stock should thus rise in absolute terms, irrespective of speculation.
We can test this, using only Bernanke's own data. We do it using the Corporate Leverage Index. That is, how many dollars of stock do you have to buy in order to acquire one dollar of tangible assets less outstanding debt? The data is all from The Fed's own Z1, the Flow of Funds report that they produce quarterly.
I happen to have that chart handy, as it's one of the indicators I track on a regular basis. Let's look at the last few years:
I'm not impressed. Indeed, I'll go so far as to say that Bernanke's claims are an outright lie.
In 2007-2008, in fact all the way up to 2009, we had very high leverage. It should have come down when the markets crashed had businesses actually built strength, much as it did after the peak in 2000, when corporate leverage declined from about 7 to roughly 4 over the next couple of years. Notice that even though stock prices rose strongly from 2003 to 2007, corporations actually built balance sheets during that time, and the leverage they took at the outset of the increase in prices was both modest and short-lived.
This is decidedly not true this time. In fact, in contrast with 2007, when leverage was at 4 (that is, you had to put in $4 to get $1 of actual tangible value) you now have to put in $12 to get that same one dollar of value.
This change in corporate leverage came only after QE began. It in fact began in the first quarter of 2009, when the first "Quantitative Easing" program was introduced. From that point onward corporate leverage has skyrocketed, and now stands at three times where it was before the "QE" games began.
Worse, this chart only goes through the third quarter of 2010. Since stock prices are higher now than then, the leverage index is likely much higher today, but we won't have the data until the new Z1 is released.
You can argue that higher stock prices are "good" if you wish, but I will respond that they're only good if they represent actual value. When they represent speculative froth we call that a bubble, and bubbles are not good, they're bad.
They're a scam and one that eventually always will collapse, leaving those who are foolish enough to be in stocks at the wrong instant in time to suffer extraordinary losses.
Just like they did in stocks in 2000, and in houses in 2007.
No Ben, the increase in stock price does not tell us that the economy is getting healthier or that corporations are doing better. In point of fact they're doing worse, and you're paying more now than ever before for a dollar of actual hard value in stocks. You have to look at the value of an asset, not it's price, to determine whether you're buying something of intrinsic value or you're simply buying because you think you can sell to a bigger sucker, just as with Tulips or PETS.COM.
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