Our first article about Ben Bernanke on this blog was titled “Jim Cramer on Ben Bernanke – Fair in August 2007 and Unfair in August 2008” ( http://www.cinemarasik.com/2008/08/01/jim-cramer-on-ben-bernanke—fair-in-august-2007-and-unfair-in-august-2008.aspx%C2%A0 ).
In that article, we coined the term “Mo-Force” to describe the (then) enormous, gigantic pool of capital in the hands of short-term, performance-oriented investors or commonly called the force of momentum money. We wrote “Look what this Mo-Force did every time Bernanke lowered interest rates or added liquidity to the US Financial System. The Mo-Force exploded the price of Oil upwards, shot up the price of Gold, crashed the value of the US Dollar and poured money in to Emerging Markets. …In other words, Mo-Force punished Bernanke and America every time Bernanke tried to help the American homeowner. This was because Mo-Force was obsessed about Inflation.”
What happened this week? What did Mo Force do in response to Bernanke’s move on Wednesday, March 18? They shot up the price of Gold, they exploded the price of Oil beyond $50, they sold the US dollar aggressively causing one of the largest declines ever in dollar’s price and poured money into commodity stocks & emerging markets.
Why? They are still obsessed about inflation, not today’s inflation but the inflation they fear will come in a few years when the economy begins to grow again. Just like Technology investors remained wedded to that theme years after that bubble had busted, Mo-Force remains wedded to the inflation and GLG2 theme (Global Liquidity Global Growth – otherwise known as the credit bubble).
So with every Fed action, they began singing hymns of reflation (rebirth of inflation), of China’s unlimited spending potential and of the charms of commodity stocks. During the bubble years of 2006-2007, CNBC Anchors became enamored of this optimistic theme and developed close relationships with the GLG2 crowd.
Even though the GLG2 bubble has burst, some CNBC Anchors remain wedded to it. This is why, every time Bernanke does something good for the American economy, these anchors begin calling for renewed inflation and begin warning of a bubble in Treasuries (See our article “CNBC & US Treasuries – More Things Change, More They Stay the Same” – January 9, 2009 – http://www.cinemarasik.com/2009/01/09/financial-media–more-things-change-more-they-stay-the-same.aspx).
In the CNBC version of “The Young & The Reckless”, CNBC anchors like Erin Burnett and Melissa Francis wasted no time in deriding the Bernanke move. The Fed decision was announced on Burnett’s afternoon show. So she had the first shot. Great Bond Investors like Bill Gross of Pimco and Ken Volpert of Vanguard were praising the Bernanke move, with Bill Gross opining that he still did not “think that is enough“.
Yet, Erin Burnett was not persuaded. She shot her opinion as an arrow “Are we ending up here with the bubble of all bubbles in Treasuries?”. The answer from her guests was a resounding No. Later in the show, her CNBC friend Jim Cramer waxed euphorically about the Bernanke move announcing “In Bernanke I Trust”. But none of this expert opinion deterred Erin.
Erin Burnett is so emotionally attached to the anti-treasury viewpoint, that she was back the next morning discussing the inflationary consequences of the Bernanke move. Her partner Mark Haines, a married with children anchor, summoned the guts to say softly that he did not think inflation was an issue. It seems to casual viewers like us that Erin, besides being young & reckless, displays a propensity to go wild at times. That may be, why Mark is very gentle when he disagrees with her on air.
But Erin Burnett was surpassed in intensity and hyperbole by Melissa Francis, a young anchor on the 11:00 am CNBC show. Melissa came from the oil pits. That may be her excuse for her inflation-phobia. Melissa kept repeating on Thursday morning that she was “terrified of inflation” adding “if not now, then later” without clarifying when the later would arrive. Unlike Erin Burnett’s guests, Melissa’s guests were even crazier than her. They made comments like “Government stole Bond Market from the Floor (of the exchange)“ and “Fed is destroying the dollar”. Also, Melissa Francis, unlike Erin Burnett, lacked mature adult company on her show to restore some sense or balance.
The “young & reckless” comment might have some relevance to why Erin Burnett and Melissa Francis see inflation while the average American family sees deflation all around them. Inflation is a state caused by too much money. And that is what these two youngish women seem to have. They receive an ungodly amount of compensation from CNBC and they do not seem to have many family responsibilities or mandatory expenses. So with too much incoming money without any real need for it, inflation seeps into their mental state. Their sense of reality becomes very different than that of the average American family with mortgage payments, with college costs for kids, with health care expenses and so on. This may be why Erin Burnett and Melissa Francis have become obsessed with inflation while the average American family is trying to survive under a crushing debt burden and while the Fed is petrified about Deflation.
If you doubt us about Deflation, listen to Maria Bartiromo’s interview with Charles Biderman of Trim Tabs Investment Research, a firm renowned for its data collection and monitoring (click on www.cnbc.com/id/15840232?video=1067446950&play=1). Be warned, this is a depressing interview. Mr. Biderman uses phases like “incomes are plunging” and opines that Fed made the move to buy Treasuries because “they are desperate”.
Erin Burnett and Melissa Francis should watch this interview. They should also read the new “The Specter of Deflation” report from Goldman Sachs in which Goldman says that core inflation is likely to slip below zero by the end of 2010. They should also read our article “What Is “Taylor Rule”? What Is It Saying Now? Was It A Factor In Bernanke’s Decision?” ( http://www.cinemarasik.com/2009/03/21/what-is-taylor-rule-what-does-it-say-now-was-it-a-factor-in-bernankes-decision.aspx) .
These three items might cure them of their inflation-phobia. Or, they could learn from their colleague Jim Cramer who told his viewers on Friday, March 20, “this temporary insanity about inflation will pass…if Ben is not worried (about inflation), I am not worried.. “.
In all seriousness, the question about deflation or inflation is the central question before America. We know how to cure inflation. Paul Volcker showed us how in 1982. No one knows how to cure Deflation. It took the onset of World War II to cure America of the Great Depression. The foremost American expert about the Great Depression is Ben Bernanke, the current Chairman of The Federal Reserve.
Ben Bernanke is determined to avoid a repeat of the 1930s disease. We need to applaud his determination and support his every move. Our future, the future of our children and the economic future of our society depends on his success.
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