John Michaelson on the trouble with ultralow interest rates

Superlow rates function like Robin Hood in reverse.  They take from retirees and frugal working people who can’t get a decent, risk-free return on their savings and give to the rich, who own most of the appreciating assets.  Would-be home buyers might be clamoring for rate cuts, but low mortgage rates don’t make homes cheaper when we can’t (or won’t) increase supply.

Cheap money promotes unhealthy consolidation in the business world, sustains staid corporate incumbents at the expense of innovative newcomers, and promotes the financialization of the economy.

In short, bankers and private-equity firms love cheap money.  The rest of us get very little out of it.

And yet the Fed’s every instinct is to return to low interest rates.  Its decadelong adherence to low rates and quantitative easing wasn’t based on empirical evidence.  Rather it was based on theoretical models and untested academic dogma.  Unfortunately, the Fed is still dismissive of real-world evidence that ultralow real rates are associated with anemic growth.

~ John Michaelson, Michaelson Capital Partners, "The Era of Low Interest Rates Is Over. Good Riddance.," Barron's, December 7, 2024

Dan Ferris on Cathie Wood begging for lower interest rates

There's an underlying point [in Cathie Wood's letter to the Fed] and it kind of credits the Federal Reserve with being able to control things from the top down simply by cutting interest rates again.  It's like cutting interest rates is some magic panacea that just makes everything better.  And what people don't realize [is that] cutting interest rates down to zero the way they did is what got us into all the crap that is now unfolding.  If you don't do that in the first place, you don't get all of this bear market, worst year in the bond market since 1788, etc., etc., etc.  If you don't get the inflation of the bubble, the blowing up of the bubble, on the upside, you don't have to put up with the exploding and the popping of it on the downside...  I think the Fed meddling and meddling and meddling is part of the problem.  And she didn't say for the Fed to be abolished and get out of the markets.  She basically credited them with the ability to make it all better by lowering rates.  And I totally disagree with that.

~ Dan Ferris, "Out Mailbag Is Full, Thanks to You," Stansberry Investor Hour, 48:00 mark, December 26, 2022

Bill Fleckenstein on how the Fed has lost control

By pursuing the policies that we did - I'm speaking mainly from the monetary standpoint - there was a massive amount of behavior modification, in corporate American, ... government.  No government worries about budget deficits or solving problems.  They just kick the can because, why not?  Well now were going to come to the moment in time where... the interest expense of the U.S. government is going to be up a bunch... I don't think people have really gotten their heads around the fact that the Fed is not in control.

~ Bill Fleckenstein, Wealthion interview, 42:25 mark, April 28, 2022

Peter Boockvar on monetary stimulus

Bernanke, it's coming from someone who put the house on fire and then ran to the fire station and jumped into a truck then put the fire out and then wrote a book saying "I'm a hero."  So it's dangerous that we've been led by people like him down this very dark alley proving that they have no real understanding of capitalism and the regenerative power of economic growth.  And the constant need to put us on opioids to recover has been a tragic mistake.

~ Peter Boockvar, interview with Dan Ferris, Stansberry Investor Hour, 29:00 mark, February 21, 2022

Stephanie Pomboy on stimulus and inflation

It seems clear that, if there is a slowdown in demand and spending, they're just going to use it as a rationale to do another round of stimulus...  The inflation is going to be a rationale for more stimulus which will fuel more inflation. 

~ Stephanie Pomboy, conversation with John Hathaway and Bill Strong, 23:45 mark

Johh Hathaway on the great monetary experiment

The consituency for sound money is all but vanished. 

~ Johh Hathaway, co-portfolio manager, Sprott Gold Equity Fund

Rupal Bhansali on why ultralow rates won't support the stock market

Q: Won’t ultralow interest rates continue to support the stock market? 

A: No, because stock prices already reflect them. It is important to build a foresight portfolio, not a hindsight portfolio.

~ Rupal J. Bhansali, Ariel Investments, "Barron's Midyear Roundtable: Stocks Are Pricey. 42 Bargains From Barron’s Investing Experts.," Barron's, July 18, 2021

Laura Rublin on economic stimulus

Ultralow interest rates and ultrahigh spending by the Federal Reserve and federal government helped the U.S. economy not only survive the devastating impact of the Covid-19 pandemic, but also thrive in its near aftermath.

~ Laura Rublin, "2021 Midyear Roundtable: Yes, There's Plenty of Value Left in This Market," Barron's, July 17, 2021

Rob Arnott on the Biden proposed $1.9 billion stimulus package

Words matter.  Applying the word stimulus to spending large quantities of money on a fiscal basis that we don't already have, creating new money from the central bank, it all feels good.  Stimulus, think of it as a little bit like heroin.  I've heard that heroin feels good.  But it doesn't do you a lot of good long-term.

~ Rob Arnott, Yahoo Finance interview, 0:45 mark, January 25, 2021

John Hathaway on QE5

There’s no turning back.  Each iteration of QE has been bigger and the current one – I guess it’s QE5 – it’s $120 billion a month, $4 trillion a year of balance sheet expansion.  And if anyone thinks there isn’t going to be another QE they’re absolutely smoking pot… as we do here in Colorado. 

~ John Hathaway, "Super Terrific Happy Hour Ep. 7 - John Hathaway: Being A Doyen Is A Good Thing, Right?," The Grant Williams Podcast, October 28, 2020

Bob Rodriguez on the Fed's response to the March Covid panic

Q: How should the Fed have responded? 

Rodriguez: I don't think it could've done virtually anything different because it had become a prisoner of its own policies enacted over the prior decade. Those policies rewarded excess and encouraged speculation. It was too late to respond differently; the die was cast.

~ Bob Rodriguez, "Bob Rodriguez: We are in a Rolling Depression," by Robert Huebscher, Advisor Perspectives, September 7, 2020

Nathan Anderson on tech bubble 2.0: "I view it as a state-sponsored mess of stupidity of sorts"

We’re in a market where there’s so much liquidity sloshing around, and so much of the retail investment is in hype-fueled industries, that it has attracted and enriched just about every stock promoter capable of telling a basic story. 

A lot of this is fueled by never-ending Federal Reserve liquidity. So the Fed has come in and largely put a bid under everything. Whenever you print trillions of dollars of new money, at any given point there’s a finite number of Treasury bills and high-quality instruments, whether corporate bonds or stocks, and you can bid up multiples to a certain point. But it seems that eventually that money flows into highly speculative names, and what that’s led to is the Nasdaq ripping past new highs, behind a lot of money that’s really going into just about any speculative tech stock with potential. I view it as a state-sponsored mess of stupidity of sorts.

~ Nathan Anderson, "Nikola Short Seller Hindenburg Research Wants to Oust Bad Actors From the Market," Barron's, September 26,2020

Steve Mnuchin: "Now is not the time to worry about shrinking the deficit"

Now is not the time to worry about shrinking the deficit or shrinking the Fed balance sheet. There was a time when the Fed was shrinking the balance sheet and coming back to normal. The good news is that gave them a lot of room to increase the balance sheet, which they did. And I think both the monetary policy working with fiscal policy and what we were able to get done in an unprecedented way with Congress is the reason the economy is doing better. 

~ Treasury Secretary Steve Mnuchin, interview on CNBC’s "Squawk Box” from the White House, September 14, 2020

Jim Grant on how leveraged finance leads to complacency

Maybe it's in the nature of leveraged finance that prosperity leads to complacency and complacency to error and error to crisis.  But how much more explosive is this chain of causation when complacency has an official sponsor in the Federal Reserve Board.

~ Jim Grant, "Chairman Powell meets Professor Goodhart," Grant's Interest Rate Observer, June 12, 2020

Kevin Duffy on the downside of ZIRP

In addition to fake news and fake science, we now have fake interest rates sending fake signals to businesses and investors attempting to allocate capital, and to governments more than willing to squander it.

~ Kevin Duffy, The Coffee Can Portfolio, May 27, 2020, p. 12

Scott Pelley of '60 Minutes' asks Jerome Powell, "Fair to say you simply flooded the system with money?"

Scott Pelley: Fair to say you simply flooded the system with money?

Jerome Powell: Yes. We did. That's another way to think about it. We did.

Scott Pelley: Where does it come from? Do you just print it?

Jerome Powell: We print it digitally. So we-- you know, we-- as a central bank, we have the ability to create money digitally and we do that by buying Treasury Bills or bonds or other government guaranteed securities. And that actually increases the money supply. We also print actual currency and we distribute that through the Federal Reserve banks.

~ Jerome Powell, 60 Minutes interview, May 17, 2020

Jim Grant on interest rate management since 2000

The federalization of American finance didn't come of a clear, blue, free-market sky.  The government has met every cyclical disturbance since 2000 with lower interest rates and heavier applications of what is fastidiously called "financial repression."

~ Jim Grant, "A short history of making things worse," Grant's Interest Rate Observer, May 1, 2020

Larry Fink on monetary stimulus and inflation

I do believe some inflation would be really good at this time.

~ Larry Fink, CNBC interview with Beck Quick and Andrew Ross Sorkin, 18:00 mark, April 16, 2020

Kevin Duffy on the financial establishment's addiction to stimulus

Never forget, the seeds of this mess (still in the first inning) were planted August 3, 2007, over a year before the 2008 meltdown.

They know nothing!!
~ Jim Cramer

Don't let revisionists like Reshma Kapadia at Barron's convince you otherwise:

It took a while before Congress, the Fed, & global policy makers were able to band together during the financial crisis to heal the global economy & set the foundation for an 11-year bull market.

Meanwhile, the Pavlovian response from Barron's is to call for aggressive stimulus to deal with Covid-19 and the stock market selloff:

Unlike the reaction to the financial crisis of 2008-09, the response to the spread of coronavirus has thus far been limited... As a result, the U.S. may face the steepest drop in economic activity in a generation.
~ Randall Forsyth

From the Barron's Roundtable members:

If I were president, I would announce a major infrastructure plan.
~ William Priest

I assume governments of the world will put a substantial amount of money into the system.
~ Mario Gabelli

The concern I have here is consumer and business confidence. That's why a response from government officials is essential.
~ Abby Joseph Cohen

All of this brings to mind the definition of insanity (often attributed to Albert Einstein):

Insanity: doing the same thing over and over and expecting different results.

~ Kevin Duffy, tweet, March 15, 2020

Jim Cramer: "They know nothing!"

Jim Cramer: Bernanke is being an academic.  It is no time to be an academic.  It is time to get on the Bear Stearns call.  Listen, open the darn Fed window.  He has no idea how bad it is out there!  He has no idea!  He has no idea! 

Erin Burnett: Cramer.

Cramer: I have talked to the heads of almost every single one of these firms over the last 72 hours and he has no idea what it's like out there.  None!  And Bill Poole?  Has no idea what it's like out there.  My people have been in this game for 25 years!  And they are losing their jobs and these firms are gonna go out of business and he's nuts!  They're nuts!!  They know nothing!!

~ Jim Cramer, CNBC discussion with Erin Burnett, 2:00 mark, August 3, 2007