Tuesday, September 4, 2012

Major Insider Take on What Is Ahead for the Economy

In August, I reported on John Carney's post about Evercore Partners founder and chairman Roger Altman, an ultimate insider, hosting the wedding of Alison Fisher, the daughter of Dallas Federal Reserve President Richard Fisher.

Carney has an important follow-up piece, since Altman is now out with an op-ed in the Financial Times. Carney explains why this op-ed is very important:
Roger Altman’s op-ed in the Financial Times argues that although our current financial slump may have a few more years to run, we’re likely headed for another boom.

Altman’s piece deserves attention not just because he is on most shortlists of Treasury Secretary candidates in a second Obama administration, but because it was very likely written while Altman — currently chairman of Evercore Partners— was in the company of some of the most important economists and central bankers in the United States.

This past weekend, Altman was in Jackson Hole, Wyoming for the wedding of Alison Fisher, his goddaughter. Alison is the daughter of Dallas Fed president Richard Fisher.

But this was not the only event in Jackson Hole this weekend. The Kansas City Fed’s economic symposium, which has developed into one of the most important central banking conferences of the year, was also held in Jackson over the weekend.

To emphasize, Altman was most likely writing his op-ed after spending time in the company of some of the brightest and most influential economic minds of our time. His piece really should be read as the final contribution to the symposium.
 So what does Altman see in the future? Carney summarizes Altman's FT piece:

Rising home prices. Home prices are rising in half of the major housing markets in the U.S.
Booming energy production. Gas and oil production in the U.S. has increased at “breathtaking” rates.
Financial sector health. The banking sector, nearly nationalized while on its deathbed just a few years ago, has recovered faster than anyone thought possible.
Competitiveness. A few years ago, we were becoming a post-industrial nation. Now we’re back in the game of making big, hard things.
Budget balancing. Here Altman gets a bit partisan, predicting that an Obama re-election could result in a budget deal that brings down our mounting debt levels.
Most interesting is Altman's view on housing, as I have been pointing out in the EPJ Daily Alert, there appears to be the start of a rebound in the housing market---and this is before any significant Fed money printing. If the Fed starts to print aggressively again, the housing sector could really soar.

Overall, Altman at some point expects that, "it is possible that the US economy will surprise on the upside. A housing revival, the revolution occurring in energy, a rejuvenated banking system and a leaner industrial base could lead to US growth beyond the 2.5 per cent rate that is widely seen as its long-term potential. In other words, the famine could be followed by a feast."

He carefully gives himself time (five years) for this to occur, and he also is careful to not discuss what the Federal Reserve will be doing in this period. But it is hard to believe that while attending the Jackson Hole symposium where Bernanke spoke and hosting the wedding of the daughter of the Dallas Fed president that he didn't form some opinion as to what the Fed was planning. Indeed, it is hard to believe that he would be so bullish, if he thought the Fed would not be acting to prop up the system  with another money blast.

Bottom line: What's really important about Altman's op-ed is not what he said, but his overall bullish tone, which would be unlikely if he did not expect more Fed money printing. The Fed printing is likely to occur sometime between the Fed Sept, 12-13 meeting and the end of the year. Given that prices are already climbing because of supply factors in the grain and oil sectors, Fed money printing could be the lit match that pushes price inflation much higher.


  1. Ok, so am I reading that you think it's gonna last 5 years?

    Really, now I'm curious. Are interest rates going to stay below 7% for 5 years?

    How many QE's/TWISTS/TARP can they do with no one blinking on currency faith?

    IDK Robert.....it's hard to keep predicting that the consequences of money printing are going to come beyond mild inflation and then read what you've posted above. It seems a bit schizophrenic to me at times.

    Unless of course you are suggesting that this "boom" is going to be a Mises crack up boom.

  2. 1) rising home prices may have a direct link to falling interest rates--What happens when rates rise just a touch. Income and employment is a better gauge. Those do not look good.

    2)Not consumption and prices do not reflect the decrease in consumption.

    3) Why does BAC still trade at 40% to book. People do not believe the book. Bring back Mark-to-Market and see what we have.

    4)Manufacturing ISM? Ignore today's release and the past 3 months.


  3. But is his bullish tone realistic? If people don't borrow, then where is the inflation going to come from?

    China is at the start of its crash, and my guess it has a ways to go with all those cities they build with no one living in them. So, China has been driving world commodity prices, and that's done for now.

    If the rest of the world has caught a cold, and we have fundamental employment issues, how is the credit going to circulate? Who's going to be piling on the debt and for what? Plus what about the shadow short-sale and foreclosure inventories?

    Sure, the conditions are ripe for inflation, as much as they are ripe for following Japan into a second lost decade.

    Carney's summary has a lot that has to fall into place in order to become reality. Are higher oil and food prices really going to stimulate spending, or more likely push those teetering on the brink over the edge?

  4. If banks are recovering so well why are excess reserves still so high? And why is QE3 still in the works?

  5. There is a huge housing overhang that has to be worked off. Millions of units of shadow inventory, in the face of 20%-plus unemployment. How are they gonna keep hiding it?

  6. His bullish tone could be due to:
    A)Spin pre-Obama election, thinking someone actully listens to him
    and will pull the lever for 'O.'
    B)He reportedly helped host Fischer's daughters wedding, and now
    thinks he will get on the early inside Fed info. list, thus ensuring even more riches for him.
    C)He wrongfully actually believes the Fed printing press can juice everything up into perpetuity.
    D)The very connected to revolving door govt. are today's big winners(witness David Koch going all govt. all the time), Altman expects his guy to keep the big house, and cash in on it all.

    Trick or Treat, Halloween comes early for Mr. A.

  7. If the economy and GDP won't boom in a ZIRP environment, then it never will. Another OBAMA shill with his head in his rear and probably another failed SOLYNDRA investor?

  8. This guy must be high on something....and it's not reality.
    Collapse of the currency is at hand, against his wishful thinking.