An economist says Trump is right: Investment is down and the Fed should help

An economist says Trump is right: Investment is down and the Fed should help

https://finance.yahoo.com/news/econo...110000998.html


Stocks saw their worst day of the year on Monday, after Beijing suggested it was weaponizing its currency by devaluing it— the latest sticking point in an ongoing U.S.-China trade war.


After America retaliated by formally labeling China a “currency manipulator” — something that hasn’t been done in over 2 decades — it sparked new market fears about the economic fallout.


President Donald Trump has hammered the Federal Reserve for not taking more aggressive steps to cut rates — and at least one economist says he agrees, as the outlook worsens.


“I’ve been a forecaster my entire professional life and one thing we always look at is where’s investment going — because investment determines future hiring, future productivity, and future real wages and real incomes,” Milken Institute chief economist William Lee told Yahoo Finance during a recent interview.


“Investment is crashing — not only in the U.S. but around the world so that’s the thing I am most concerned with,” he added.


And the Federal Reserve could do more to help, according to Lee.


“We need to have a policy back-stop to reassure confidence among producers and investors...that’s something the Fed has failed to do,” Lee said.


He compared Fed chairman Jerome Powell to European Central Bank chief Mario Draghi, who has embraced a ‘We’ll do everything it takes’ to back-stop the economy,” Lee said.
“And if he were to do that I’d think we’d have much more solid growth going forward,” he added.
Interest rates too high?

China’s unexpected currency intervention provided an opening for Trump to once again target the Fed over its interest rate policy, despite the central bank's decision to cut rates by 25 basis points last week.


“It’s called ‘currency manipulation,’” Trump said in a Twitter post. “Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!”

China dropped the price of their currency to an almost a historic low. It’s called “currency manipulation.” Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!
— Donald J. Trump (@realDonaldTrump) August 5, 2019

Late Monday, the U.S. officially accused China of manipulating its currency, and Beijing moved to limit the damage. But there could be pause for China to fully weaponize its currency moving forward.


“If [China does] let the exchange rate go, domestic residents that are holding yuan assets are going to say, ‘My God this stuff is worth less than other global assets’ so there could be a massive capital outflow,” Lee warned, citing Beijing’s 2015 attempt to devalue the yuan.


And when it comes to lower interest rates, Lee explained the president just might have a point.


“What President Trump is trying to do is get the rates down on the short-end because that is what the Federal Reserve can control,” the economist said.


“But remember the long-end — the 10-year treasury (TNX) and the 30-year Treasury — are dropped down to the 170s now because global interest rates are also incredibly low,” he added.


The yield on the 10-year note dropped Monday to its lowest level since 2016.


Both Europe and Japan have implemented below-zero interest rates, in an unconventional bid to boost growth and inflation.


“The U.S. having such high long-term rates is incompatible and really misses the line with the global economy,” he added.


On Monday, the Dow (DJI) shed as many as 961.63 points at the lows of the day, with tech stocks including Apple (AAPL) leading declines.


Trade bellwethers like Boeing (BA) and Caterpillar (CAT) also saw steep losses as China allowed the yuan (CNHUSD=X) to weaken past seven per U.S. dollar (DX-Y.NYB) for the first time in over 10 years.


Alexandra Canal is a Producer at Yahoo Finance. Follow her on Twitter: @alliecanal8193


how many times has Trump criticized China for manipulating their currency? i lost count at 100. LOL. China has been playing this game with their currency for decades. it's partly how they prompt up their phony economy. that they are doing it now reeks of extreme pressure from the trade issues. they want to try to wait out Trump hoping he loses in 2020.


China may not have that much time. they are a house of finacial cards waiting to collape and have been for decades.

So the market is down. how much skin the the game does the TWK foundation have. a lot. but to me the dip of 15,00 dollars .. (oh my! PANIC SELL SELL SELL) is less than 4%.


a drop in the bucket. only an idiot would panic and start selling .. i won't call it a buy opportunity .. the market is not down much. for a real buy .. it needs to drop about 20-25%. then it's time to BUY BUY BUY!


like me and my bud Warren Buffett. we'll rally the market on sheer buying power!


BAHHHAAAAAAA

The idea that China's manipulating its currency to make it weak would be hilarious, except that the leader of the free world, Donald Trump, believes it. Kyle Bass is a fund manager. He's famous for predicting and profiting from the mortgage crisis in 2008/2009. He also hates China as much as Peter Navarro or Steve Bannon. He said a couple of days ago that the Renminbi would drop 30% or 40% if China weren't propping it up.

The economist you quote says "“If [China does] let the exchange rate go, domestic residents that are holding yuan assets are going to say, ‘My God this stuff is worth less than other global assets’ so there could be a massive capital outflow...” If the Chinese floated their currency, and let markets determine the value, and allowed its citizens and businesses freely convert their Renminbi to foreign currencies, the currency would go into free fall.

The Renminbi is weak is because of Donald Trump's trade war. Investment is down (which worries the economist you quoted) because of Donald Trump's trade war. The Chinese have done everything they could to prop up the value of the Renminbi short of selling their 2 trillion dollars worth of U.S. debt and converting the dollars back to Renminbi. If that happened, then yes, I bet you would be able to buy stocks for 20% or 25% less. Who knows, perhaps 50% less.

As to Fed policy and interest rates, eccieuser had a great link to an interview with David Stockman:

[QUOTE=eccieuser9500;1061665264]There's some Trump bashing at the start that may may discourage you from watching the whole thing, but if you persist, you'll be rewarded. The Fed has had interest rates lower than inflation for 10 years! I'm not knowledgeable enough to try to criticize Greenspan, Bernanke, Yellen or Powell. But feel comfortable saying Trump's taking us down a dangerous path when he starts trying to manipulate Fed policy by jawboning and appointing people to the Fed who he knows will do his bidding. This is what Richard Nixon did in the early 1970's. Initially the chair of the Fed, Arthur Burns, resisted Nixon's demand to lower interest rates. Eventually he and the rest of the Fed caved, and what did we end up with? A period of stagflation and a couple of recessions that were worse for our economy than the 2008/2009 mortgage crisis. It took Paul Volcker and Ronald Reagan to straighten out the mess, with interest rates higher than inflation and a strong dollar.

Rick Santelli is the CNBC commentator who started the Tea Party movement back around 2009 when he went on a rant about the Bush/Obama program to use taxpayer money to bail out bad players responsible for the mortgage crisis. This morning he went on a mini rant, and said Larry Kudlow (one of Trump's economic advisers) should drag Trump into a room and educate him about stupidity of the low interest rate and weak dollar policy he favors.

Trump potentially was going to go down in history as one of the few presidents who demonstrably improved the economy, with his corporate tax cuts and deregulation. Now it looks like he's going to undo that with his trade and interest rate policies and huge deficit spending. Hopefully he'll straighten out before it's too late.

As to Fed policy and interest rates, eccieuser had a great link to an interview with David Stockman:

Originally Posted by eccieuser9500

There's some Trump bashing at the start that may may discourage you from watching the whole thing, but if you persist, you'll be rewarded. The Fed has had interest rates lower than inflation for 10 years! I'm not knowledgeable enough to try to criticize Greenspan, Bernanke, Yellen or Powell. But feel comfortable saying Trump's taking us down a dangerous path when he starts trying to manipulate Fed policy by jawboning and appointing people to the Fed who he knows will do his bidding. Originally Posted by Tiny

Tiny (and Kudlow) are exactly right! you can't devalue the dollar and cut interest rates to the bone, in response. interest rates have been too low for too long.

Tiny (and Kudlow) are exactly right! you can't devalue the dollar and cut interest rates to the bone, in response. interest rates have been too low for too long. Originally Posted by Chung Tran

I respect you as much as any poster on eccie, because of your contributions in the Dallas threads, although we seem to almost always disagree about politics. Glad to find something we agree about.

I'm starting to rethink this. The yield curve looks like it may invert, because interest rates on longer term debt are going down. In the past, this often preceded a recession. Germany's GDP growth now is negative and numbers out of China look bad. The trade war is a bigger threat to the economy than people thought. The Fed may be right to start cutting interest rates.

I'm starting to rethink this. The yield curve looks like it may invert, because interest rates on longer term debt are going down. In the past, this often preceded a recession. Germany's GDP growth now is negative and numbers out of China look bad. The trade war is a bigger threat to the economy than people thought. The Fed may be right to start cutting interest rates. Originally Posted by Tiny

Ya think? Some EU countries have NEGATIVE rates. China has devalued their currency. The Fed is going to cut rates in September and probably in December too.

Ya think? Some EU countries have NEGATIVE rates. China has devalued their currency. The Fed is going to cut rates in September and probably in December too. Originally Posted by bambino

Their interest rates are negative because their economies suck. That’s not something we want to emulate

Their interest rates are negative because their economies suck. That’s not something we want to emulate Originally Posted by Tiny

Of course they suck. They’re socialists and globalists. We need to keep competitive.

I'm starting to rethink this. The yield curve looks like it may invert, because interest rates on longer term debt are going down. In the past, this often preceded a recession. Germany's GDP growth now is negative and numbers out of China look bad. The trade war is a bigger threat to the economy than people thought. The Fed may be right to start cutting interest rates. Originally Posted by Tiny

Their interest rates are negative because their economies suck. That’s not something we want to emulate Originally Posted by Tiny

but we don't want to slash interest rates to ward off a Recession. the drop in long yields is a response to weak economic conditions, but slashing interest rates to make the differential larger, doesn't fix the problem. the only reason the already too low interest rates haven't hurt, is the large influx of Government money in the system. cutting interest rates significantly now, will force Savers into other "investments", and require more Government Bond sales to inject cash into the system, to replace REAL Savings investment. that "works' In the short-term... Savers flee to riskier assets, you get the illusion that the Economy is better, after asset prices increase. but One needs to address the reason the long yields are dropping.. market manipulation only works for a Season.

but we don't want to slash interest rates to ward off a Recession. the drop in long yields is a response to weak economic conditions, but slashing interest rates to make the differential larger, doesn't fix the problem. the only reason the already too low interest rates haven't hurt, is the large influx of Government money in the system. cutting interest rates significantly now, will force Savers into other "investments", and require more Government Bond sales to inject cash into the system, to replace REAL Savings investment. that "works' In the short-term... Savers flee to riskier assets, you get the illusion that the Economy is better, after asset prices increase. but One needs to address the reason the long yields are dropping.. market manipulation only works for a Season. Originally Posted by Chung Tran

You've got a good point. Ten year yields are low because the market thinks short term rates will be low for a long time. If the Fed cuts result in lower short term rates, then maybe long term rates follow them downward and drop even more. If the trade war ended, I think you'd see longer term yields go up. At least they seem to be going down in response to negative news on trade.

Maybe the government should start selling more longer maturity instruments and cut back on financing the debt through shorter term T-bills and T-notes. Right now that wouldn't increase the government's interest payments. And maybe it would cause longer term yields to go up relative to shorter term.

I wrote that because I was watching CNBC this morning and they were showing charts of the spread between 2 and 10 year notes, and, indeed, every recession was preceded by a period when 2 year yields were higher than 10 year yields.

I agree 100% with your thoughts about savers. While this is above my pay grade, intuitively, there's something wrong when interest rates have been lower than the inflation rate going on 10 years.

I'm starting to rethink this. The yield curve looks like it may invert, because interest rates on longer term debt are going down. Originally Posted by Tiny

My own ignorance might be at play here, but uhhmm, if long term rates are going down, doesn't that mean there is a surplus of buyers? In other words, the buyers are long on US and short on Chi and Germ

In the past, this often preceded a recession. Originally Posted by Tiny

In the present, sounds more like fake news by trying to scare the average consumer into worrying that Orange Man bad economy prior to a National election, seeing whereas we are predominately a consumer economy. Shoot! Even Bill Maher is hoping for a recession - openly. WTactualF?

Germany's GDP growth now is negative and numbers out of China look bad. The trade war is a bigger threat to the economy than people thought. The Fed may be right to start cutting interest rates. Originally Posted by Tiny

The trade war is a bigger threat to the 'German' and 'Chines' economy than people thought. There, fixed that for you. The US holds all the cards. Really have for evah. Difference is that we know have a playa at the table that knows how to play. Recall the US GDP continues to grow and flourish. Juss say'n...

More media scare and deceive , Recession ( not happening anytime soon)

[QUOTE=Tiny;1061681233]The idea that China's manipulating its currency to make it weak would be hilarious, except that the leader of the free world, Donald Trump, believes it. Kyle Bass is a fund manager. He's famous for predicting and profiting from the mortgage crisis in 2008/2009. He also hates China as much as Peter Navarro or Steve Bannon. He said a couple of days ago that the Renminbi would drop 30% or 40% if China weren't propping it up.

The economist you quote says "“If [China does] let the exchange rate go, domestic residents that are holding yuan assets are going to say, ‘My God this stuff is worth less than other global assets’ so there could be a massive capital outflow...” If the Chinese floated their currency, and let markets determine the value, and allowed its citizens and businesses freely convert their Renminbi to foreign currencies, the currency would go into free fall.

The Renminbi is weak is because of Donald Trump's trade war. Investment is down (which worries the economist you quoted) because of Donald Trump's trade war. The Chinese have done everything they could to prop up the value of the Renminbi short of selling their 2 trillion dollars worth of U.S. debt and converting the dollars back to Renminbi. If that happened, then yes, I bet you would be able to buy stocks for 20% or 25% less. Who knows, perhaps 50% less.

As to Fed policy and interest rates, eccieuser had a great link to an interview with David Stockman:

There's some Trump bashing at the start that may may discourage you from watching the whole thing, but if you persist, you'll be rewarded. The Fed has had interest rates lower than inflation for 10 years! I'm not knowledgeable enough to try to criticize Greenspan, Bernanke, Yellen or Powell. But feel comfortable saying Trump's taking us down a dangerous path when he starts trying to manipulate Fed policy by jawboning and appointing people to the Fed who he knows will do his bidding. This is what Richard Nixon did in the early 1970's. Initially the chair of the Fed, Arthur Burns, resisted Nixon's demand to lower interest rates. Eventually he and the rest of the Fed caved, and what did we end up with? A period of stagflation and a couple of recessions that were worse for our economy than the 2008/2009 mortgage crisis. It took Paul Volcker and Ronald Reagan to straighten out the mess, with interest rates higher than inflation and a strong dollar.

Rick Santelli is the CNBC commentator who started the Tea Party movement back around 2009 when he went on a rant about the Bush/Obama program to use taxpayer money to bail out bad players responsible for the mortgage crisis. This morning he went on a mini rant, and said Larry Kudlow (one of Trump's economic advisers) should drag Trump into a room and educate him about stupidity of the low interest rate and weak dollar policy he favors.

Trump potentially was going to go down in history as one of the few presidents who demonstrably improved the economy, with his corporate tax cuts and deregulation. Now it looks like he's going to undo that with his trade and interest rate policies and huge deficit spending. Hopefully he'll straighten out before it's too late. Originally Posted by eccieuser9500

You lose all credibility when you throw Trump into the mix.
No party shows any fiscal restraint and hasn't since the 1994 republican take over of congress. You seem to forget that congress controls the purse strings.I have said many times that Trump is a moderate...and this last spending bill shows neither he nor ANYONE in congress care about the deficit...with the exception of Rand Paul and Ted Cruz, maybe you know others. My point being that the deficit is growing and growing and there isn't one individual to pin it on...it's very disingenuous of you to pin the enormous ever growing deficit on Trump along. I agree with you on artificially low interest rates but the same can be said about his predecessor. The last President that I saw that was a fiscally responsible one was President Reagan...but he had no power without the help of congress.

Yeah bb1961, filter out the criticism of the messenger instead of the message and I agree with the substance of your post. Those words, "huge deficit spending", didn't tell the whole story. Please let me revise and clarify as follows:

1. Congress and George W. Bush were responsible for growing the deficit enormously

2. Congress and Barrack Obama were responsible for growing the deficit enormously

3. Congress and Donald Trump are growing the deficit enormously.

4. A Republican Congress and Bill Clinton actually balanced the budget.

5. Rand Paul and Ted Cruz are responsible about spending and deficits. Most Congressmen are profligate.

Also, I'd like to revise my previous reply to Chung Tran. Originally it was

Trump has done some good things. If he thought like Republicans of old on trade and lightened up a bit on immigration and could muzzle himself, I wouldn't have much to complain about. Originally Posted by Tiny

I should have added "didn't, along with Congress, seem intent on financing government the same way he financed his casinos" to the list.