Should Ben Go?
Stocks continued their gaining ways today by ending up 34 points. Bonds continued increasing in interest rates a little.
The Dollar, oil and gasoline all moved sideways today.
Gold was the standout by gaining $11, and ending at $970. Just sit back and enjoy the gold run. It’s hard to explain unless you say that there are a bunch of people who think gold is going very high, and they are jumping onto the bandwagon right now. Let’s hope so. If gold pulls back, I believe there will be a buying opportunity for gold.
In the news today…..
Pending Home Sales – increased last month and this is five months of increase in a row. While this is a good sign, the most important aspect of home sales is the price of homes – and prices are still falling. The increase in pending sales (defined as signed contracts to purchase a house, but not yet completed through the title company) shows that people are buying houses. I can talk fairly authoritatively about Arizona. The majority of sales in AZ are investors buying at fire sale prices, and renting out the properties. I talked to a realtor and he is, personally, buying houses just outside the Phoenix area for $35K to $45K (and these are fairly new homes) and renting them for $650 to $700/month. Do the math – these cash flow. She is paying cash, and cash is king, and that way she gets the best price. But, remember, I am talking about a specific market (Phoenix suburbs) and every market is unique.
Consumer Spending – rose in June, while incomes dropped their biggest percentage in years (down 1.3%). June’s spending increased by 0.4% over May. Increasing spending and decreasing income equates to a reduces savings rate in June. May’s savings rate was 6.2%, and June’s savings rate was 4.6%. My interpretation of these statistics is that Americans (with jobs) are starting to feel like the recession is near the bottom, and are willing to spend – just only a small amount more. The savings rate should continue to increase for the next year or more, and could easily top 10% – and it’s the savings rate, or more importantly, the savings that will be used as economic investments in production that will ultimately pull us out of the recession.
Home Loan Modifications – are behind schedule according to the government. The government is now using “shame” to get the reluctant banks to modify loans faster. Today, the government announced that Bank of America and Wells Fargo Bank are both way behind in modifying loans – and both these banks have taken large amounts of TARP money to help them through their tough times. BofA has modified only 4% of modifiable loans, and Wells Fargo has modified only 6%. Here’s my comment – shame is not enough to make these banks voluntarily give up their capital. The government is going to have to go inside these banks and bang heads.
Tonight’s Dinner Conversation……
Should Ben Bernanke be kept on as the FED Chairman when his term is up next year? This is the President’s choice, of course, but as it could directly affect every American – I believe this question should be debated. And you can do it tonight at dinner.
When you look at Ben Bernanke (as well as Treasury Secretary Geithner – in his previous job of New York FED Chair), you are looking at a person who was directing the banking sector on our behalf, before and when we had our economic meltdown. In other words, Bernanke was part of the problem in the sense that he didn’t foresee the problem coming and try to stop it earlier.
Since the economic collapse last September, Bernanke, Geithner, Paulson, and Summers have done nothing but SUPPORT the banks who got us into this mess in the first place. Are they just a little too bank centric? And aren’t they just a little too little citizen centric?
So, my personal opinion is that when it comes to a choice for FED Chairman, I hope that President Obama picks someone new who is untried and untested. Why do I say that?? Well, the obvious contender for the job is Larry Summers (the President’s economic advisor), and he was also around when the economic disaster happened, and he did nothing either.
So, I believe someone who is “untried and untested” is better than someone who is “tried, tested and failed.”
Here are the last numbers for today:
Dow Jones 30 Industrial – 9320 (up 34 points)
10 Year Treasury Bond – 3.68% (up 0.04%)
Euro – $1.4402
Gold – $970 (up $11)
Oil – $71.42 (down $0.16)
Gasoline $2.06 (down $0.01)
Tom, I don’t believe I am saying this, but Ben did prevent total economic collapse which would have occurred had the FED, under Ben, not taken its drastic action to date.
Keep in mind, I believe the Fed only pushed the fundamental problems down the road a few months/years.
Thus, given the choice between Ben B. or Summers, I’d take Ben.
Now on to the question about who should be the next Fed Chairman. Well, the Treasury Secretary and Fed Chairman are way too tied to Wall Street. That’s for sure. Same as the last two fellows in those offices.
I’d love to see an outsider clean up the system. Perhaps someone like Warren Buffett or Charlie Munger. Ok, I can dream can’t I.
It is amazing that the Fed and Ben B. did not see the massive equity bubble and slow it down. Their leadership has to be taken as a sign that either they are completely incompetent or just a tool of WS to suck money from the system and funnel it to insiders.
Do I really think Obama would appoint someone who was an outsider that would drastically change/improve our financial system? Nope. That isn’t the way politics works in Washington.
Anyone who’d clean up the system wouldn’t want the job anyway. For example would Buffett, Munger, or guys like Roubini want to be Fed Chairman? I’d even take someone like Mish or Bill (at Calculated Risk blog). But they’d say no too.