Fed wisely looks forward, not back

Ahead of the possible government shutdown, Bernanke knows that what matters is the future, not the past.

By Jim Cramer Sep 19, 2013 9:17AM

thestreet logoLet's say Federal Reserve chief Ben Bernanke ran the nation's biggest retailer instead of the world's biggest hedge fund. Let's say you are a retail analyst. Given what you know -- which is that a repeat of the 1995-1996 government shutdown is about to occur -- would you be taking numbers up or would you be slashing them?

 

I think the answer's pretty clear: You would be slashing them. You know that a shutdown is bad for business. It was bad back then when the economy was very robust, and it will be much worse right now. You would not be saying, "Hey, there's been a decent amount of hiring in the last months. I am raising numbers." You would be saying, "I have to cut numbers because the last government shutdown slowed down all spending and really hurt commerce."

If you hadn't cut numbers, you wouldn't have been a terrible analyst. You would have been looking backward, not forward.

 

Yet, on Wednesday, I heard a great deal that was about how things are so much more robust now than when the Fed first hinted at a scale-down of the bond-buying program. I heard about how Bernanke's nuts to be cautious, and that he should have followed through with some cut-back.

 

Why?


Why should he have?

 

What's happened since he first started talking about cutting back?

 

First, interest rates spiked well beyond innate demand, and mortgage and refinancing rates went up so much that there's been a dramatic plunge in applications. Ever since the spike, banks have been trying to fire as many people as they've been able. They're doing so with a level of alacrity that is shocking and frightening if you've worked at one of these places.

 

Second, retail sales crumbled. We tend to forget which companies had shortfalls, but it is a real "who's who" of retailing: Macy's (M), Sears (SHLD), Wal-Mart (WMT), Target (TGT), Nordstrom (JWN), Saks (SKS), Gap (GPS) and J.C. Penney (JCP). Every one of them said that things are softer than expected. I think it is safe to say that this has been the worst back-to-school season since the Great Recession began.

 

Dollar bills floating over U.S. Capitol © CorbisThird, we've been about to lose the prop of housing. We know that the homebuilding stocks have been telling the truth about this market for months now, with their lackadaisical rallies and very large selloffs. But the real tell of how troubled things were going to get was the selloff in Home Depot (HD) shares after the company reported a very good quarter. That was a sign that you have seen the last of the housing comeback -- and the housing comeback, not worldwide growth that's pulling America with it -- was central to Bernanke's chances to create sustained growth.


Remember, we are only one-third of the way back when it comes to single-family home construction. Last year, the U.S. built units at a rate of about 500,000, which is dramatically lower still than the 1.5 million we averaged between 2004 and 2006. That's nowhere near where Bernanke wants those numbers to be and, given the decline in mortgage applications, we all know it's reasonable to think we have seen a high for the cycle. It's hard to see through all of the obfuscation of the industry, as no homebuilder ever wants to come out and say that they aren't selling. That's bad for business. But if you look through the linearity of all of the homebuilders' numbers, you will see that's what has been happening.

 

So, in that environment, why in heck does the Fed have to taper quantitative easing? If Bernanke studied the 1995-1996 tapering, he would know that gross domestic product growth will be fairly likely to see a very big decline in the fourth quarter because of the coming government shutdown.

 

I know I spoke to a lot of people who were mesmerized by the stock market into thinking that all was well going into the meeting. That's wrong. It is entirely possible that the stock market could be misreading politics, as it has done every time in the Obama era. Just because the market isn't yet reacting to a shutdown worry doesn't mean it won't still do so. Just because they were all buying opportunities doesn't mean that they won't go down first. We have established endlessly that this market has no memory. So why should it remember the huge declines ahead of the 2011 debt downgrade, the fiscal cliff and, to a lesser extent, the sequestration?

Fortunately, Bernanke, unlike the bulls in the stock market, knows that a shutdown could destroy confidence and drastically cut back business. In that light, it is pretty amazing that more didn't see his non-move coming. But, then again, the most overcrowded trade in the era was to be short the 10-year U.S. Treasury. When the biggest buyer of the 10-year said it still wanted to buy, there was no supply there at all. None.

 

That's because, in reality, there's no real demand for money up where the 10-year was a week ago, and there will be even less as we get closer to the shutdown. Bernanke knows that what matters is the future, not the past. But the bond bears? They were living in the past. And they were crushed for doing so.

 

Cramer

 

 

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and had no positions in stocks mentioned.

 

 

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45Comments
Sep 19, 2013 9:54AM
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And any person with a penchant for history understands we are now under the rule of an Oligarchy.  Those left thinking otherwise need to suffer for a bit more until they realize our representative form of guberment has been over thrown.  One can't help but notice after listening to Putin and Assad that they speak more to the heart and soul of the human experience than what we here in America are listening to from our fraudulent leadership. The FED I believe knows that with globalization pressure is on to lower American consumer wages and lifestyles.  Every international Economist worth a lick will tell you that..  They also must know the foreign developing markets are dependant on that sweet cream arbitrage profit from the seemingly overpaid American consumer who is rapidly being tapped out.  Thinking and wishing capitalism will take hold in these Asian Countries is in my opinion a stretch.  You need to be very arrogant, as these New World Order types are, to believe the last little 30 years of being fed crispy easy American dollars will alter a 5,000 year old culture. So our FED is not just thinking of us but perhaps moreso the dependant developing countries that are solely dependant on us for continued profits.  The FED is in a world wide maintenance/nothing else will work mode.  Remember that it is no longer our FED but the worlds FED. They will be unable to prime the pump; as they are attempting, and are in my opinion hoping something may come along and save us. This arrogant consortium attempting to rule the world may in time have to resort to even more propaganda to stave off increasing social unrest.  The groundwork they have laid in this Public School education system to believe the state before you believe your family, friends, and yourself will eventually crash down hard but only after much much suffering.  It is past time to expect a decent recovery under the existing policies.  Like an economist said the other night, "If we started right now it would take at least two generation to recover what we have lost in the last 5 years".
Sep 19, 2013 10:41AM
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Forget the past, the future is all that matters? Seriously? We're on our 3rd round of QE, and God knows how many trillions have been poured in, and for what?  What was the goal?  To improve the economy, right?  Get us jump started, so we could grow our way of the mess, right?  But it didn't work.  Just look at the results. 

We have fewer wealthy people now than we did when the recession officially ended 4 years ago. And those fewer wealthy people have acquired more wealth in the last 4 years.  Was that one of the goals of QE?  Because that's what happened.

Was the goal of QE to double the number of people on food stamps?  Was it to double the number of people on disability?  All that happened too.  Was the goal of QE to have a U6 rate of 14% a full 4 years after the recession officially ended?  Was it to have a pitiful 2% GDP growth rate?  That's the reality of where we're at.  And yet, in the mind of Cramer and many others, more QE is what we need.  Unbelievable.



Sep 19, 2013 10:56AM
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It's a theft of our children's and grandchildren's future wealth .....nothing more, nothing less .....the elites have no political or national allegiance they simply worship the god of greed ......much of this stolen wealth leaves the US and most likely will not return until  they can purchase our hard assets at 1c on the dollar .....

Banking scum.......
Sep 19, 2013 9:37AM
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your premis is based on a pending government shut down?  start there.  why would that actually happen?  does one party want to insure they never get elected again? 

 

if Bernanke is looking to the future, just how strong a future do we have with seriously more debt? 

 

alan greenspan had a nice concept that the wall street market is NOT the main economy and claimed he wasn't concerned with wall street like he was with main street.  (although he wasn't focused on main street either). 

 

so the slow drip of the money drug for the special 1% class continues. 

Sep 19, 2013 11:07AM
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Power and responsibility.

The name of the game in politics is power. Congress uses our tax dollars and borrowed money to buy their political power. So long as the American people or all people for that matter, don’t have to face the real cost of government, congress keeps and expand its power. When the people face, see or understand the cost of government, government’s power is controlled. The problem is that people don’t except responsibility for government. We want to believe they are entitled to government programs and they don’t want to know the cost of government. This is the true course of socialism. However, it is financially unsustainable, as socialism always is. In any civilization past, present or future, under any form of government, pharaoh, king, dictator, socialism, parliament or congress, there is only one person responsible and we can meet that person when we look in the mirror to comb our hair, shave our face or but on our makeup. When we abrogate our responsibility to any form of government that government will eventually make us their pons and slaves, this is where America is today. We are losing our democracy, liberty and freedom because we refuse to face the real cost of government, in effect accepting our responsibility for government. Responsibility starts with the American people being responsibility for the cost of government and paying the bill.

Sep 19, 2013 10:15AM
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The decision to continue full speed with QE did not come as a surprise, at least to some of us.  And Cramer is right - there are too many things to be dealt with over the next few months that scared the Fed away from any taper.  But that still doesn't justify the whole QE strategy. 

Cramer is constantly surrounding himself with the top 1% who have benefited most from all of the policies and schemes put in place over the last 5 years, including QE.  That's fine and he's certainly free to do so, but it just ends up skewing his POV.  Cramer needs to take a week off every couple of months and drive through middle America and get a different perspective.  Because the real results aren't good, and they will only get worse.
Sep 19, 2013 11:25AM
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The Fed actions weren't a complete failure. In fact, they were an complete success for those it was intended to really help, the Already Wealthy. The year over year over year RECORD North American Luxury Car Sales has proven that. The shortage of available Mega Mansions has proven that. The Record Prices Paid for High End Homes and Rentals has proven that.

The Fed Actions have also for now, kept hidden in plain sight, the Biggest problem of all. The massive array of WMD type Derivatives floating on the balance sheet of all Big Banks. Floating in Pension funds and Governments balance sheets. Now that's the real issue here.

And here's the worst part, when Uncle Ben's induced Great Recession final takes place, you know the deal. A recession is a Garage Sale for the Already Wealthy. Literally everything is on Sale yet only the SuperRich can afford anything.

Sep 19, 2013 10:56AM
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Once again, Cramer has shown that he is a complete idiot. He doesn't get that the Fed's policies over the past five years have been a complete failure. Yet, he thinks a continuation of those failed policies is just the ticket to widespread and sustained prosperity. What a buffoon!!!!
Sep 19, 2013 11:39AM
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Any so-called economist that claims it will take two generations to recover from what we have lost in the last 5 years is totally clueless. What America has lost has been DECADES in the making. It clearly didn't start the last 5 years. The notional amount of outstanding Global Derivatives went from well under $100 Trillion in 1998 to well over $600 Trillion in 2008.

We can debate all day long on exactly what has been lost and to whom. What can't be debated, the massive $500-700 TRILLION in Ponzi Styled Banking Derivatives which are at the very heart of the past and all future economic collapses.

The Global FEDS are colluding together on RATES, that seems to be crystal clear. The FED isn't forward looking because if they were, the buying program would have ended two years ago.

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ROFL

 

Cramer the Federal Reserve sent a clear message yesterday and that message was that the US economy is still DOA (dead on arrival).

 

If pumping $85 billion a month into the US economy can not jump start it then the patient is dead and should be buried and not given more and more life support that is flowing out like blood tranfusions for someone with a gun shot wounds to the heart with ten bullet holes through the heart. The blood is flowing out faster then it is being pumped in.

 

We are still suffering a Lost Jobs Death Spiral and an ever weaker and weaker economy.

 

It is not going to turn around folks.

 

The problem with the US economy is that real wages have been headed down except for the the top 1 percent who have seen their income double since the crisis. The 1 percent do not spend money but merely accumulate it which is a total waste of resources.

 

More and more people are not working which is an total waste of resources about 70 million Americans are not working and not even lookign for work who use to work.

 

They say it only took 30,000 people 20 years to build the Great Pyramids at Giza (which is crazy numbers when you think about it but that is another story) As we have 70 million man years not workign in the US alone that means we could produce 116 pyramids like the Great Pyramid in Giza a year with the unused labor going to waste.

 

Imagine we could have built 580 Great Pyramids since the financial crisis. Or built enough polution control devices that we would have clean air across America now. They say we can not afford to clean the air as it is too expensive but yet we have unemployed people who could do the work and at $1,000 a month salary it would be much cheaper than Bernake's money give away to the super rich.

 

We have crossed over to total insanity folks. Instead of spending money on projects that need funding we have merely doubled the income of the super rich while real Americans have lost 30 percent of their income.

 

We need leaders who can really led us and create jobs and build things instead of crooks who merely steal all the money they can get their hands on.

 

 

Sep 19, 2013 10:55AM
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"Fortunately, Bernanke, unlike the bulls in the stock market,"

 

We are in a "monkey" market Bobo........ Bull and Bear don't mean anything right now.

Sep 19, 2013 1:17PM
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We were hoping for a quiet and relaxed day but that may not happen....Yesterday is history folks, the Fed did what he had to do, our economy is still in shambles and unemployment is out of control...Period....As far as down here today we see some profit taking and manipulators of course licking their wounds trying to start something; we are actually shocked we are not down a lot more than 40 points after yesterday, oh well, they still have about 3 hours.....More later.
Sep 19, 2013 4:43PM
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First of all, nobody is suggesting reading All Books, just some good books. See that's the type of BS I was talking about. Nor does it take that long to Read a Book and or use the electronic Media for Books that are available in this new-age. With all these freaking Perma-Bulls to Infinity, what's the freaking Rush to push folks in now anyway. According to them, you have a very very long time to invest and make money. Regardless of the Global Realities we face.

This is hardly my first Rodeo concerning posting boards. I know all about boards/forums dealing strictly with stocks and have known aka quite aware of what does or doesn't go on. And for quite some time. And that's pretty much since all this internet stuff started.

Folks have their views about it and I stick to mine. It's mostly BS. Do your own research and stick to what you believe is best. And yes, it will take actually effort. No free ride. Don't rely on others who might have a hidden agenda or those that might be emotionally attached. They won't give you a refund, ever.

Sep 19, 2013 4:28PM
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By the time you read "all" the books about investing..All the "good investing" will have passed you by.

 

Maybe some don't go to "posting boards" to listen, contribute or discuss investments...??

There are many,many sites...

You can get many ideas..

You can get diverse opinions...no pumping, dumping; That gets discounted quickly.

And you are not talking with morons about investing, many are seasoned, some are young day traders, yes it takes all types...

I get alerts all day long about certain investments, ideas and other information...

I really don't have time to read books....I read articles by the same Authors and dozens of others.

Sep 19, 2013 10:38AM
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It is sweet justice to see traders burned by the Fed decision. Traders largely manipulated QE for profits, while the Fed was focused on helping the economy  and creating jobs. It was a case greed versus economic well being.  There is no justifiable reason for the Dow to decline today ,,, only for profit taking.   The Fed decision was a win for the economy and the honest investor, not for traders who are largely employed by banks constantly paying fines for their market  dishonesty.
Sep 19, 2013 4:17PM
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Politics or more plainer, some laws from the Feds or Gov, can affect our investments no doubt.

 

It's the "broken record" portion of discussions of "day after day" and "month after month" of the same old bullsh!t....

MSN may evoke some political discussion, but it is a handful of posters that INCITE it...

Day after day.

 

Decisions coming out of the FED have bearing, along with certain spending from Congress should be noted, to as a guidepost on certain investments, but blaming all our problems on the Government and Obama...Is just sometimes miss-guided hatred for other reasons....imo.

Sep 19, 2013 4:14PM
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The absolutely worst place to go for investment advice are posting boards. Period. That's regardless of any given political talk or not. If a investors is long, they will pump the position regardless of the fundamentals. If a investor is on the other side, they will do just the opposite.

When it comes to MONEY, folks are of course Emotional Attached and therefore there is ZERO reason to trust views, yours or mine on some posting board. Just take it for what it is, not the place to search for investment advice for or against any investments.

The best thing is to find the Best Books and read about investing first. Then do your own research of stocks and or funds and leave Emotions out of it. No poster is going to refund you either way so why bother adding their emotions investment wise to your own. Even Jimmy claimed to have Quit the business due to the Stress and Emotions involved. Now he just wants to stress out everyone else.

Sep 19, 2013 12:42PM
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Barry, Did you ever hear of Henderson?Many millionaires like myself, and also billionaires.

I wouldn`t talk about NY.It`s not paradise.The weather is crap.This is damn close to paradise.

It`s easy to tell when somebody has missed the bull market.They`re the people who bellyache

about Fed money.

Sep 19, 2013 12:46PM
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Well TOG, some people don't like Jack Daniels.  They prefer Carlo Rossi Sangria.

 

I like following these sites because people post about securities I've never heard of.  Can't spend the whole day in front of a computer.  Here is where I learned about SDT and NTI.

 

And unfortunately we do have to pay some attention to Washington DC because what goes on there impacts investments, which is wackadoodle, but true.  Especially the wonderful world of oil.  Many government regulations controlling oil production, refining, and transport.

 

This is a Cramer article, so MSN will probably remove it in an hour or so.  They don't leave them long.  A little more time for Jubak's articles.

 

 

Sep 19, 2013 12:40PM
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Ice....Too bad with this being a Financial/Investment site...

 

Many just come here to argue Politics or agendas, it will get way worst come election time.

Others give their opinions, which is okay ?  But when the opinion becomes nothing more then a "broken record" day after day, month after month..

It's almost a waste of time to even read the Articles.

 

Especially when you related to a good investment, and were no doubt realizing appreciation on it..

And pointing out that anyone else could have made money also.

And then you get 4 of those "thumbs down" things....I guess it really shows the caliber of the readers or commenters on here....Or whether or not, that some are investors at all.

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