The Mess That Greenspan Made - Part 40

Rubin to QE3: “Me No Likey”

There’s a lot not to like about former Clinton Treasury Secretary and former Citigroup CEO Robert Rubin since, along with former Federal Reserve Chairman Alan Greenspan, these two probably did more than any other two people on the planet to create the mess that we find ourselves in today.

However, there is some small redemption for Rubin given the views he expressed on the Fed’s latest round of money printing last Friday in his address to a forum on monetary policy at the University of Chicago Booth School of Business as detailed in this WSJ story.

“The real issue is, what were the risks and rewards of QE3? There’s a widely held view that the benefits of QE3 have been relatively limited,” Mr. Rubin told an audience that included several Fed officials. At the same time, “these vast flows of capital have gone up the risk curve and created what may well have been excesses, that now as we know are tending to unravel — and that has a destabilizing effect.”

Mr. Rubin also said he is not as confident as top Fed officials who say they can absorb the high level of reserves in the banking system when the time comes to tighten monetary policy by simply raising the rate the central bank pays for holding excess reserves.

“I don’t think there are any magic wands,” Mr. Rubin said.

David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy and a WSJ contributor, then asked Mr. Rubin what the Fed should do about monetary policy at the current juncture.

Mr. Rubin’s answer elicited laughter from the room of Wall Street and hedge fund economists: “I think I would do what the Fed seems to be doing, but I don’t know what the Fed is doing. I hope they know what they’re doing.”

A much better response to Mr. Wessel – and an answer that I probably won’t ever forget – came from GMO’s Jeremy Grantham who, when asked a similar question some time ago quipped, “Well, I wouldn’t start from here.”

Dow 6,000 by 2016?

In this interview with CNBC (that comes off sounding a lot like someone telling the Pope there is no God), author Harry Dent cites demographic trends in his rather alarming forecast that the years ahead will prove to be “the most dangerous period in peoples’ lives to invest”.

Come to think of it, years ago, there was lots of talk about how the baby boomers would, someday, start retiring and sell a lot of their stocks in favor of the income and relative stability afforded by bonds. With the boomers now starting to exit the workforce en masse, you don’t hear much about that any more.

Anyone who, today, says “Dow 6,000″, is going to attract a lot of attention and, of course, that’s exactly what both CNBC and Harry Dent are counting on in stories like this. Nonetheless, it’s kind of fun to see CNBC hosts on their back feet a little bit when confronted with the possibility of a third major asset bubble popping within 15 years.

I guess the only good news here for stock investors is that, according to Dent, the 17,000 level is likely to be seen first, before returning to much lower levels.

Tuesday Morning Links

MUST READS
Markets steady despite Ukraine fears – BBC
Obama’s toughest Ukraine task: A united front – Politico
Putin makes case for Russia to use force in Ukraine – MarketWatch
The markets are punishing Russia more swiftly than diplomats ever could -Quartz
Russia vows to switch to other currencies over US sanctions threat – Voice of Russia
Economists Say Paul Ryan Misrepresented Their Research – Fiscal Times
Should You Invest in the Marijuana Boom? – Testosterone Pit
Who is the reclusive billionaire creator of Bitcoin? – Telegraph
Bitcoin bank Flexcoin closes after hack attack – Guardian
Buyout barons ride market to $2.6 billion payday – CNBC
Rubin Says Fed’s QE3 Will Lead to Trouble – WSJ
What good are children? – voxeu

To find out what Tim thinks of today’s news, subscribe to Iacono Research

MARKETS/INVESTING
Easing of Ukraine tensions shores up markets – AP
Where to put your money if war breaks out – MarketWatch
US investors biggest scaredy-cats in the world – CNBC
A Growling Bear is Bad for Everyone – E-piphany
Corporate insider bearishness at pre-2008 levels – MarketWatch
The Best Investment Strategy? Getting Out of Our Own Way – NY Times
Treasuries Declineas Ukraine Tensions Ease – Bloomberg
Gold prices fall 1 pct as Ukraine tensions ease – Reuters
Gold, Silver Soar; Silver Eagles Top 9.1M – CoinNews
Election implications for India’s gold price – Mineweb
Crimea, the Fed, China and Gold – Mineweb

ECONOMY/WORLD/HOUSING/BANKING
Americans borrowing record amount to buy cars – CNBC
Undoing the Structural Damage to Potential Growth – NY Times
It Turns Out “Harsh Weather” Is Boosting The Economy – Zero Hedge
Crimean Crisis: All Eyes on Merkel – Spiegel
Why Apple Is Hiring More Engineers in China – WSJ
Chinese plead for Canada to let them immigrate – AP
Housing market shows signs of cooling after decade of growth – China Daily
Pimco Sees Canadian Housing Market Falling as Much as 20 Percent – Bloomberg
Think Gen Y will prop up Canada’s housing market? Think again – Globe & Mail
Banking Contributes a Lot Less Value Than You Thought – Naked Capitalism
Fed Tapering News and Emerging Markets – San Francisco Fed
Fed Talk Shifts to Higher Rates – Fed Watch

 

Tulips, Bitcoins, and Bubbles

Bitcoin appears to be hanging in there as the U.S. dollar price of the virtual currency is surging anew today, no doubt influenced by geopolitical unrest and some certainty about the fate of its once number one exchange Mt. Gox that has now officially gone belly-up.

This story in China Daily doesn’t hold out much hope for the currency over the long run, noting the current mania looks “worse than the Dutch tulip bubble that peaked in 1637, when tulip bulb prices skyrocketed before suddenly collapsing“. Interestingly, there are some critical comments about the virtual currency from an official from China’s central bank along with this curious cartoon where it’s not entirely clear what the gold bar is thinking.

According to the latest data from Coindesk, Bitcoins are worth nearly 20 percent more this afternoon than they were this morning and that’s a big part of the reason why its hard to take this currency very seriously as anything other than a grand experiment that has resulted in a speculative boom and partial bust.

From $13 last year to over $1,200 and then back to $0 if you happened to have dealt with Mt. Gox, the ongoing demand for Bitcoins is probably more a testament to how much people dislike government money than how much they like Bitcoin.

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