Moments ago, during an interview on Wharton Business Radio, St. Louis Fed president James Bullard, who recently flipped from the Fed’s biggest hawk to its more vocal dove, said that he sees just one rate interest in the next few years. Judging by the market action ever since the February lows, he is merely confirming what the market already knows. He also confirmed that the Fed will never hike rates at a time when even one recent economic data point has printed negative, saying “the right time to move rates is after good economic news.”
More troubling was his admission that the Fed is now helpless to fix America’s biggest problem, namely the ongoing decline in productivity by saying the Fed “can’t influence US productivity growth rate.” He is sadly very wrong here, because while the Fed can not influence productivity, it certainly can influence what corporations allocate capital toward, and as we have repeatedly shown, in recent years, virtually every dollar of free cash flow generated by the S&P500 has gone not toward productivity-boosting activities like spending on growth capex or expanding R&D, but toward stock buybacks and dividends, instead. We are confident not even Bullard would deny that pushing the stock market higher in what is one slow-motion, marketwide LBO (or rather MBO) does absolutely nothing for economic productivity; it does, however, do miracles for trickle-up wealth, as both investors and management teams (courtesy of their equity-linked compensation) have never been richer.
This post was published at Zero Hedge on Aug 12, 2016.
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