Bob Brinker's Moneytalk Summary January, 19-20, 2008

Brief Summary, Commentary and Moneytalk Excerpts, January 19-20, 2008
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The opening monologue on Saturday was quite lengthy -- much of it was spent bashing Ben Bernanke and the Fed. Brinker places most of the blame for the recent stock market decline squarely on the shoulders of Ben Bernanke.
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Here are some excerpts of Brinker's comments:
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Bob Brinker said: ".......Let’s take a look at what’s going on in terms of fundamentals out there? First of all, we have the Federal Reserve – we’ve talked about this many times over the past several months. We have the new chairman, Ben Bernanke, at the helm of the Federal Reserve. Ben Bernanke made a decision when he came in to continue to hike rates -- to pick up the baton from the Maestro and continue to hike rates. He hiked them all the way up to 5 1/4 %. You remember the criticism that I leveled at the new chairman, feeling that he’d gone too far. Then he held them there for a year, and now he has taken them down 1% -- down to 4 1/4 % as we speak.
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So the new chairman has been slow getting it together—getting his act together as the boss at the Fed. We have discussed this subject ad nauseam on Moneytalk. Why did he make this mistake? He made this mistake of being too slow in getting the Fed where it should be by misinterpreting high oil prices as inflationary.
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When you say that high oil prices are inflationary and therefore, you cannot reduce rates because you are worried about inflation, you are so wrong when you say that that it’s hard to believe that a Fed Chairman could make that mistake, but my opinion is that was the core mistake that the Fed Chairman made in failing to properly manage the short-term interest rate situation – driving rates too high, holding them there too long, cutting them too slowly. And that’s why we are where we are right now, in my opinion.
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Because when you misinterpret high oil prices as inflationary, and therefore, make the mistake of failing to adequately ease monetary policy in favor of economic growth, while fighting these imaginary inflation gremlins that are running around in your head or in your dreams, then you tax consumers, because the high oil prices tax consumers and they don’t get any relief when interest rates are held too high. Their discretionary spending power is reduced because they are leaving their money at the pump. They are leaving their money with the power company. Have you seen some of the power bills? They are leaving their money with the heating oil dealer.
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And instead of focusing on providing some help to the economy by lowering rates, in an adequate fashion – not just 1%, so far – what they do is they cause a problem......the problem that we have right now, which is the Fed has not done a very good job under this new Chairman. Which is unfortunate, but it’s in my opinion dead on straight, accurate talk about the situation with the Fed Chairman – and I like Ben Bernanke and I wish him well. I just don’t think he’s done a very good job, so far.
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Now of course it is absurd for the Federal Reserve to try to take on oil prices. Why would a Fed take on oil prices? First of all, they’re a tax on consumers so that’s going to slow the economy. Second of all, the Fed has no power whatsoever, zero, to impact oil prices. Oil prices are established by oil transactions on a global basis and therefore, the notion that the Federal Reserve controls oil prices is ridiculous – totally ridiculous. They are established by global supply and global demand. Not through Fed policy. So for the Fed to take on oil prices in the name of inflation worries while ignoring economic growth is really a huge mistake. I think that’s what they did……..and I think that’s the reason we are where we are.
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Now obviously they need to lower rates. They’re going to have to take them well under 4% --maybe they’re going to have to look at 3, 3¼% 3½% -- pretty soon, over the next couple of meetings, I certainly would expect we’d be into the 3-3½ range. In fact, I think at this meeting coming up January 30th or by then, I think you’ll see the Federal Funds rate down 50-75 basis points…….And I think that’s what the Federal Reserve has to do with what’s going on in Wall Street......."
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ECONOMY: Saturday, Brinker said he hadn’t changed his views on the outlook for the economy. He said that he expected “very little or no growth” during the first half of 2008. (Honeybee sez: This was the first time I ever heard him say "no" growth.) Sunday, Brinker said that the economy was "very close to the flat line in the first half of 2008," and expects the 4th quarter GDP number to come out very low-- single digit number. He expects some economic recovery in the second half of 2008 or into 2009.
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EXPECTED FED FUND RATE CHANGES Sunday Brinker excerpts: “I think that he (Ben Bernanke) should have never taken rates to 5 ¼ and brought them down more already than he did, while he thinks that 4 ¼, at least for the moment is the appropriate rate. Think about what I just said, if he does not believe that 4 ¼ is the appropriate rate today, let me ask you a question, why is it 4 ¼? (Honeybee sez: Brinker's question makes no sense to me, even after listening repeatedly) That’s a good question with not a very good answer likely……. By the 30th of this month, they’ll be 50-75 basis points lower – I don’t think there’s any question about that. And I think by the March meeting, we could see another….rate reduction. I would not be surprised to see the Federal Funds rate at 3-3 1/2 % by March."
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MYSTERY CALL OF THE WEEKEND Darryl said: “I really want to thank you, one thing I delayed the sale of my real estate –a small farm from 07 into 08 and I’m going to save myself a lot of money. And I thank you for that. (Brinker: “Thank youself, I didn’t do it.”) "You got me looking into it." (Brinker: “You are very kind….to share the credit.”) Darryl continues: “I’m a subscriber to your Fixed Income Advisor and your Marketimer……..”
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Honeybee asks: Does anyone have a clue what the caller and Brinker were talking about?
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