Tuesday, August 24

John Batchelor Show Tue: Bloomberg Sr. Economic Analyst Joesph Brusuelas, et al. re bond bubble, US housing mkt., Fed Reserve, etc. plus Australia

I have become a fan of Joe Brusuelas through his appearances on the John Batchelor Show. He has what I'd call a steel-trap mind; very precise and organized, and it shows in his speech pattern; the result is that he conveys complex economic issues with great clarity. Tonight he co-hosted the show for a time; below, John Batchelor's excerpts from the discussions.

For readers who want to hear the discussions in their entirety the podcasts for the segments are posted (as of 1:00 AM 8/25) at the WABC radio web page.

Also, I note that John has been closely following the political situation in Australia, both on his show and his blog, ever since Rudd's government collapsed. See the 8/24 summaries below and podcasts for the latest reports on the election from WSJ and Dow Jones reporters and John's latest post on Oz

Tuesday 24 August 2010
By John Batchelor on August 24, 2010
Co-host: Joesph Brusuelas, Bloomberg senior economic analyst

Tuesday 905P Eastern Time: Jeremy J Siegel, Wharton, in re: bond bubble. [Summary] People are so spooked, they'll buy 10-yr Treasurys at 2-1/2% - unprecedented,. Lemmings line up to buy bond funds. After the last several days it's hard to say "too gloomy." Assumption that the economy will bounce back? As a professional economist I see productivity as the most important factor - and right now I see some high numbers that'll translate into higher incomes and disposable spending. it may take a year or more, but it'll happen. We have a large number [of people working on the most advanced questions]; we're going to have a v strong economy. The Fed seems to be in a food fight - those who think we should print money vs those who think we should raise rates.

And then there's Bernanke. "We need to be sure that the money supply does not shrink." Bernanke is right: he's a monetary policy expert who's studied the Japan deflation and the 1930s depression. He'll do everything to prevent a repeat of the 1930s. That's why we won't be a Japan. Their bubble broke in 1989, deflation didn't start till twelve years later. The main thing that made the '30s disastrous was a 30% decline in the consumer price index; no one could pay his debts. You cannot allow that to happen. I think Bernanke will persuade the Open Market Committee to add enough liquidity to prevent deflation.

JBrusuelas: Would you agree with Bullard, St Louis Fed, to do whatever it takes but slowly? What's the most efficacious method here?

JS: I don't think we need another trillion and a half. I'd move up between $200 and 400 bil. I'd actually buy packages. Long-term loan rates are high; the Fed should buy auto loans, credit card loans, business loans. This would bring down the rates and add liquidity to the system. One of the biggest inhibiting factors is that we'll end this year in a few months and nobody know what any of the taxes will be in 2011. Unprecedented. Advisors don't know what to tell their clients. Obama must come out and tell us what he proposes for 2011. Unless he comes up with some tax policies - not punitive ones - that is, those alone would bring about a large rally in the Street.

Tuesday 920P Eastern Time: Paul Vigna, in re: The existing home-sales housing number is really bad. Nobody expected good news - and then it was down 27%. Nobody thought it'd be that bad. It's back to the worst level since 1996; the housing market is falling off a cliff. This is the aftereffect of the homebuyer tax credit. What we're seeing now is where the housing market really is. Also, the supply of homes for sale is now at 12 months. A new cyclical high.

JBr: The data are so grim, so bad on so many levels. The share of distressed homes as a share of overall sales inched up to 32%. One-third of the market is severely discounted homes. As that share is captured, it'll create a negative feedback loop. It's happening at exactly the wrong time, at the Q3. This is why the response today was across asset classes. This is more than the tax subsidy ending; this is a dress-rehearsal for deflation. Consumers are behaving rationally: they don't believe that the housing market has bottomed out and they won't buy till they do.

PV: What is the Fed going to do? They have their annual meeting in Jackson Hole; Bernanke will speak on Friday. What can they do? They've nailed interest rates to the floor; they've bought a trillion in bonds and will buy 200 billion more. What else can they do?

JB: Paul Vigna reports that the housing number shocked the WSJ newsroom. Joseph Brusuelas was on TV when the news came out: he heard deep sighs all around. Is Congress part of the problem? Yes - one of those 2,000-page [legislation] bills. No cost control. We need very simple solutions, which do exist. This thing is building on fear. The Obama administration is a deer frozen in headlights. We could be near a major sell-off in the market.

Tuesday 935P Eastern Time: Joseph Brusuelas; Paul Vigna, Markets Hub, WSJ; Laurence Kotlikoff ("The US is bankrupt."), Boston University, in re:

LK: unprecedented housing decline: it was expected in a general sense; the real question is what will happen in three or four months. I'm a pretty dismal economist, but we could alarm the public. If you own a home and hte price goes down, if you just stay in your home you're OK. We've got the same eqpt, persons, behavior, as we did two years ago.

PV: the mkt would be impressed if Bernanke said "quantitative easing." They've been doing this, which is how they expanded their balance sheet [i.e., put us all trillions in debt]. Printing money is the best thing for the stock market, but not for the rest of us.

[Brusuelas]: The discipline of economics is in a sorry state right now, caught between the fantasy of a perfect market and .[?] Banks have about $800 billion in excess reserves. The real solution is fundamental reform in healthcare, tax policy, financial conduct. National savings rate is 1%. It was 13% in 1960.

Tuesday 950P Eastern Time: Paul Vigna, et al., in re: The Fed can't do much about employment. They can print money, but they can't print jobs, as Larry Kudlow wrote last week.

[Batchelor] Now we have QE lite.

J Brusuelas: More to do with risks of deflation in the economy. The idea of deflation has taken hold in the housing market. George Melloan has a column today in the WSJ, says the reason companies won't spend cash and banks won't lend is a lack of certainty. Essentially, a capital strike. The WH has the tools; will it use them?

Tuesday 1005P (705P Pacific Time): Mary Kissel, WSJ Asia, in re: The still-unresolved Australian elections, as seen from Hong Kong again. For the moment. seems to favor the Liberals, although marginally. Tony Abbot told the truth and has transformed Australian politics. Labour lost a lot of votes to the Greens; as they gain more protest votes, they'll move the party to the left. See: OzWaits and AusVotes on twitter

Tuesday 1020P (720P Pacific Time): John Fund, WSJ, in re: President Obama has become one of the biggest millstones around Democrats' necks heading into the fall elections.

Tuesday 1035P (735P Pacific Time): Elizabeth Rosenthal, NYT, in re: GM crops in Europe

Tuesday 1050P (750P Pacific Time): John Tamny, RealClearmarkets, in re: housing is a black hole for the economy

Tuesday 1105P (805P Pacific Time): John Burns, NYT, in re: WikiLeaks's Assange: molestation charges

Tuesday 1120P (820P Pacific Time): Rachel Pannett, DowJones, in re: Australian continued minority government negotiations. Debriefing the election. Australian dollar ("the kwid") recovers; miners rise. Broadband plans may be the battleground.

Tuesday 1135P (835P Pacific Time): Bob Zimmerman, author, in re: astrobiology; oxygenation in ancient ocean margins precedes atmospheric rise

Tuesday 1150P (850P Pacific Time): Nick Wade, NYT, in re: Harvard fake-science investigation of Marc Hauser.

Tuesday/Wed 1205A (905 Pacific Time): John Schwartz, NYT, in re: Katrina five years later - a new Corps of Engineers wall, crenelated.

Tuesday/Wed 1220A (920 Pacific Time): John Vinocur, NYT, in re: Obama and Merkel: both in trouble with Europe

Tuesday/Wed 1235A (935P Pacific Time): George Melloan, WSJ, in re: The Fed, deflation, inflation, stagflation

Tuesday/Wed 1250A (950P Pacific Time): Exeunt.
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