Tuesday, February 11, 2020

Just So No One Thinks Société Générale's Albert Edwards Is Wrong About The Helicopter Money, Here's The Dallas Fed

Following up on yesterday's "Société Générale's Albert Edwards Not His Usual Jolly Self: Sees The End Of His Ice Age Thesis" here is a presentation put together by Evan F. Koenig,Vice President, and Jim Dolmas, Senior Economist, Research Department, Federal Reserve Bank of Dallas.

The presentation literally uses this image on page 7:

Not to put too fine a point on it but that is a U.S. Army CH-47 Chinook helicopter in a presentation by a couple Fed Bank honchos with the boilerplate disclaimer:
The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.
Here's "Monetary Policy in a Zero-Interest-Rate Economy", May 2003
If short-term interest rates fall toward zero, it may be necessary for the Fed to re-think how it conducts monetary policy. In this document, we examine why conventional policy loses its effectiveness at very low interest rates, and review some of the alternative policy tools that are available. We’re hopeful that this entire discussion will prove to be academic–that our economy’s natural resilience, together with the easing the Fed has already undertaken,will be sufficient to get employment and output growing again. But it’s nice to know that if additional stimulus is required, there are still arrows left in the quiver.
The Recovery May Be Stalling Despite Low Interest Rates As shown in Figure 1, short-term interest rates are as close to zero as they’ve been at anytime since 1958. Any further rate reduction will make life difficult for banks and money-market funds, which will either have to start paying out less than a dollar for each dollarinvested, or to begin charging explicit management fees....

The version above is via iTulip, the same folks keeping "The Day the NASDAQ Died" alive on the internet.
Virtually every other reference to "Monetary Policy in a Zero-Interest-Rate Economy" has been scrubbed from the web, though we do have a back-up copy in the PDF server should iTulip go down.
I think we first posted the presentation in February 2008 as part of a series on what the Fed could do regarding the coming storm. Knowing the options at the Fed's command gave a measure of comfort when the storm broke in September of that year.
Prescient? Nah, just nervous.

More fun is this pastiche from the year 2000:

On Friday March 10,2000 the Nasdaq closed at 5048.62, its all-time high.
On the following Monday the Naz was down 141 points. Tuesday, 200.
The index had begun a 30-month decline to it's September 24, 2002 intra-day low of 1,169.04,
down 77%.

This became one of my favorite songs:

The Day the NASDAQ Died
Humble Pie (sung to the tune of American Pie)

A long, long week ago
I can still remember how the market used to make me smile
What I'd do when I had the chance
Is get myself a cash advance
And add another tech stock to the pile.
But Alan Greenspan made me shiver
With every speech that he delivered
Bad news on the rate front
Still I'd take one more punt
I can't remember if I cried
When I heard about the CPI
I lost my fortune and my pride
The day the NASDAQ died 
So bye-bye to my piece of the pie
I poured my paycheck into Datek
Now my cash account's dry
It's just two weeks from a new all-time high
And now we're right back where we were in July
We're right back where we were in July 

Did you buy stocks you never heard of?
Q COM at 150 or above?
'Cos your plumber told you so
Now do you believe in Home Depot?
Can Wal-Mart save your portfolio?
And can you teach me what's a P/E ratio? 

Well, I know that you were leveraged too
So you can't just take a long-term view
Your broker shut you down
No more margin could be found
I never worried on the whole way up
Buying dot coms from the back of a pickup truck
But Friday I ran out of luck
It was the day the NAAAASDAQ died 

I started singin'
Bye-bye to my piece of the pie
I poured my paycheck into Datek
Now my cash account's dry
It's just two weeks from a new all-time high
And now we're right back where we were in July
Yeah we're right back where we were in July 

Now for ten days, we've been on our own
And E-trade won't pick up the phone
But that's not how it used to be
When investors snapped up EMC
With cash they borrowed easily
And a quote that flashed up permanently green
Oh, and just as things were turning 'round
Joel Klein slapped Mister Softee down
The courtroom was adjourned
A guilty verdict was returned
And while Gilder read a book on quarks
Buffet smirked and Greenspan barked
The bulls were eaten by the sharks
The day, the NASDAQ died 

I started singin' ...
Manic panic, it's just like the Titanic
Unsinkable and now under the Atlantic
We're at four thou and falling fast
All at once the bottom-fishers pounced
But that just caused a dead-cat bounce
'Cos Mister Softee, from the sidelines, preannounced
Now the graph-lines showed complete collapse
While the margin calls were coming fast
We all were forced to sell
Our Apple, E-Bay and Intel
Then the bear funds moved to take the field
And the long bond shed a point of yield
Was Glass-Steagall ever really repealed?
The day, the NASDAQ day 

We started singing...
Oh, and suddenly we're underwater
Millionaires all hot and bothered
With no cash left to buy again
So come on, Fed be anxious, com-pen-sate
By lowering the discount rate
'Cause easy money is a bubble's only friend
Oh, and as I watched the index fall
I received the dreaded margin call
No broker born in hell
Could make me want to sell
But as my gains fell fast into the crash
E-Trade began demanding cash
The talking heads were talking trash
The day, the NASDAQ died 

They were singing...
I met an analyst for Micromuse
I asked him for their earnings news
But he just smiled and turned away
I logged on to the trading floor
Where I made my fortune weeks before
But they demanded to see cash before I played
And on T.V. the ticker streamed
Kudlow cried and Barton dreamed
Not a bullish word was spoken
The daytraders were choking
And the three stocks I acquired last
AMAT, Dell and Infocast
Couldn't catch a bid and faded fast
The day, the NASDAQ died 

And they were singing....
Bye-bye to my piece of the pie
I poured my paycheck into Datek
Now my cash account's dry
It's just two weeks from a new all-time high
And now we're right back where we were in July
Yeah we're right back where we were in July
Thanks to iTulip for giving it eternal cyber-life.