Jan 19 2014, 4:32pm CST | by Forbes
In what might be his last major public appearance before handing the reins to Janet Yellen in February, Bernanke explored the historic precedents for the Fed’s handling of the 2007-2009 financial crisis, largely defended Fed policy during and after the crisis, and thoughtfully looked at both the pros and cons of quantitative easing.
Among his more notable and quotable moments during his interview and Q&A session:
“Oh certainly, I had sleepless nights.” (And did not always see himself as the “Buddha,” a characterization by Tim Geithner.)
“We did the right thing, I hope.” (Referring overall to the actions of the Fed and noting that highly visible actions such as TARP, interest rate policy and coming to the aid of major financial institutions was also accompanied by much “under the radar” action not generally acknowledged. He also asserted that “over time” history will hopefully come to understand that Fed policy was meant to benefit “the average American.”)
“I give President Bush a lot of credit.” (Primarily for “giving us support and leeway” and “making some unpopular political decisions” which were in the nation’s best interests.)
Hank Paulson, Geithner and Bernanke: “had a common purpose and a very strong partnership…we were quite complementary,” though “we did have our points of discussion.”
“A Senator during the heat of the crisis told me his constituent calls on TARP were running 50/50: 50% said NO, 50% said HELL NO.”
“The great majority of academic studies show it (QE) to be at least somewhat effective.”
“We feel we can control the downside risks that people talk about (related to QE).” (Citing the threats of “inflationary pressures,” potential “capital losses” for the Fed, and “financial instability” risks. He pointedly noted that the Fed has delivered significant funds to the Treasury over the past few years.)
“It’s bad luck to make any market predictions, but valuations are broadly within historical ranges.” (Addressing the notion that the Fed has created an asset bubble.)
“Although the financial crisis had long-lasting and important effects, I do not believe they are truly permanent.” (While acknowledging that unemployment, the lack of productivity growth, and a slower pace of innovation are concerns of his and he is not entirely sure of the answers.)
And in a joking and somewhat inside baseball reference, “The problem with QE, it works in practice, but it does not work in theory.” (In explaining that while QE mainly relies on “a basic monetarist principle” of “swapping liquid assets for non-liquid assets” and has some historical precedents, the Fed was relying to some degree on untested academic research and ideas from “our own experiments.” Bernanke added that despite public perception of the internal discussion and voting, “I don’t think a large number of people on the (FOMC) committee feel that it (QE) is inherently not effective.”)
Bernanke’s comments, while getting a fair amount of financial media play, did not seem on the surface to be a market driver this week. Many market observers were left scratching their heads on what exactly the market thought of the New Year, with one of the deepest market drops of the past few months on Monday, followed up Wednesday but yet another new all-time high for the S&P 500.
Goldman Sachs seemed to be sending out its own mixed signals, with reports Monday of a market note by GS chief strategist David Kostin that the S&P 500 index’s valuation is “lofty by almost any measure.” (MarketWatch) Kostin, however, still has a year-end target for the S&P of 1900, up about 3%, with further market gains to be defined by “profit growth rather than P/E expansion.”
This was followed by reports of another Goldman department, this one the private wealth group, telling well-heeled clients in a note to “stay fully invested at their strategic allocation to U.S. equities.” (BusinessInsider) The note was reportedly generally bullish and cautioned that “the penalty of being wrong when underweighting US equities are very high.” But the same note acknowledged that this was “a nuanced recommendation” and they were advocating, “extra vigilance, knowing that the summit is in sight.”
This cautionary feeling of both notes seemed reflected in the week’s market action, driven perhaps by the start of earnings season and the extremely mixed action there. For the week, the Dow added 0.1%, the S&P dropped -0.2%, and the Nasdaq recorded the largest move, a gain of +0.5%. The earnings of the large financials led the way in setting the unclear sentiment picture, with a decidedly uneven bag of results, with the most notable trend a drop in mortgage activity.
Let’s take a quick look at what some of the newsmakers were saying this week:
–“The last week has certainly tested this administration.” –NJ Governor Chris Christie in his “State of the State” address this week and alluding to the twin challenges of BridgeGate and questions on the use of Sandy recovery funds for tourism advertising featuring the Governor.
–“I believe it is important that the capability this program is designed to meet is preserved.” –President Obama in his much-watched address on national security, the NSA, and the “phone metadata collection” program. (Forbes) However, Obama declared that the programs need further “safeguards” and a “new approach.”
–“When we entered the holiday season, we said that price competitiveness was table stakes and an intensely promotional holiday season is what unfolded.” –Best Buy CEO Hubert Joly in talking about results which profoundly disappointed the Street and saw BBY shares plummet a mindboggling -35% on the week.
–“I think 2014 will be a year to rest mentally and physically prepare myself for the future and begin a new chapter of my life.” –Superstar, or former superstar, Alex Rodriquez in remarks following his season-long drug suspension. A-Rod also said, “the league could have done me a favor because I’ve played 20 years without a timeout.” The remarks were quite odd, to say the least, as Rodriquez and his legal advisors are still in the midst of efforts to overturn the decision. (ESPN)
--“The committee found the attacks were preventable.” –Senate Intelligence Committee report on the Benghazi attacks, which was highly critical of the State Department and the intelligence community. (CBS)
–“To us, it smacked of double jeopardy.” –Apple CEO Tim Cook in a letter to employees. While he criticized the FTC for its pursuit of a suit on billing practices involving unauthorized charges by children, he also basically said it was not worth a “long and distracting legal fight” as Apple agreed to refunding some $32.5 million to customers…something Cook claimed they were already doing. (CNBC)
–“The performance of advanced economies is gaining momentum, and this should support stronger growth in developing countries.” –Jim Yong Kim, the president of the World Bank, said in a statement as the World Bank upped its growth forecast to 3.2 percent for full-year 2014. (NYT)
–“We expect an increase in the proportion of young adults going forward.” –HHS Office of Health Reform Director Mike Hash as HHS released statistics last week showing 24% of health insurance enrollees were between the ages of 18 and 34 (and well below what some had forecast at 39%). HHS was having none of the negativism, saying, “The trends so far are suggestive of an appropriate mix.” (realclearpolitics.com)
–“The only thing they got right was the baseball cap.” –Shoe mogul Steve Madden on “The Wolf of Wall Street” and his characterization therein by Dustin Hoffman’s son Jake. (NY Post). “The guy was too nerdy,” Madden reportedly said.
Let’s close it out there for the week, as it is already past time to get into today’s NFL championship games.
But one more Hollywood note, as the awards season has gotten into full swing. One of the most highly nominated TV shows has been “Modern Family,” featuring buxom star Sofia Vergara. Ms. Vergara has been far from shy in flaunting her assets, and several media sites said in effect she personally had last week “given new meaning to the Golden Globes.” And you can just guess what part of her anatomy she thanked last night in helping to accept Modern Family’s win for best comedy ensemble at the SAG awards show (video here from Buzzfeed).
Source: Forbes Business
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