Lakshman Achuthan, co-founder of the Economic Cycle Research Institute, spoke with Bloomberg Television’s Tom Keene today and said that, “What we said back in December was that the most likely start date for the recession would be in Q1 and if not then, by the middle of 2012. I’m here to reaffirm that. I think we’re in a recession already.”

This is not some doomsday person or ‘analyst’, the ECRI claims a new perfect record in declaring recession.

Video and highlights below:

Achuthan on whether he can reaffirm his recession call from last year:

“Yeah…I think a lot of people forget what our call was. What we said back in December was that the most likely start date for the recession would be in Q1 and if not then, by the middle of 2012. I’m here to reaffirm that. I think we’re in a recession. I think we’re in a recession already. As I said back there, it is very rare that you know you’re going into recession when you’re going into recession. It often takes some big hit on top of the head. In the last recession, it took Lehman to wake people up and the recession before, it took 9/11.”

On how ECRI defines recession:

“It is not our definition. It is the definition of what a business cycle is, which was established by my mentor Jeffrey Moore’s mentor Wesley Mitchell back in the 1920s. What is a recession? It is not a statistic; it is a process between production, employment, income and sales. When you look at those four measures, they are rolling over.”
“It is not all about GDP. It is about jobs. It is about income and sales. A recession is a vicious interplay among output input employment, income and sales. When you look at 2001, you can’t find two negative quarters in a row, yet you lost 3 million jobs. Or half the value of the NASDAQ. How are you going to tell someone that wasn’t a recession? When you look at the data today, you see that industrial production is off of its April high. Manufacturing and trade sales, much broader than retail sales, is off its December high. Real personal income growth, which does not always go negative during a recession, has been negative for several months so it is consistent with a recession having already started.”

On what the relative optimists get wrong in economics today:

“I think there is this belief that somehow government or a central bank will stave off a recession. For the last 220 years, you do some history with Hamilton, which ended in a duel by the way…you have had 47 recessions. Why are we going to avoid the 48th? Here we are in the wake three years out of the last recession. You see this leading indicator. It leads, it is the drivers of the business cycle and it is doing this bumping down. People look it that and they say, each time they throw in some money or do something, you get less for it. I am surprised given the trillions of dollars spent around the world that that indicator is as weak as it is. That is a recessionary reading.”

On why the U.S. is struggling:

“We have entered these so-called yo-yo years. We have been seeing weaker and weaker expansion since the mid 1970s. We have not been freaked out by it because the business cycle has been pretty mellow over the last 20-25 years. Until now. So if you have a more volatile business cycle and low growth, you get more recessions and you start to destroy people’s ability to earn. In particular, when we talked slower expansion, we’re not talking GDP, we’re talking jobs, too. In particular you’re seeing no jobs growth.”

On how globalization plays into indicators:

“There’s a lot of things in there. Globalization is part of it. There’s a lot of one offs that have occurred in the last decade. The falling of the iron curtain. The emergence of China and India. A lot of productivity growth. A lot of aging of the population. So there is a lot of a factors in here at work. But when you are competing, as we are globally, companies are trying to squeeze their costs. People are a big part of that. What you see is what is alarming right now, people that are in their prime earning years, which is roughly from 35 to 54, over the last two years, they have lost jobs. Net jobs have been lost for that cohort of the American job market and that is when you’re supposed to make your money.”

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Vehicle Production Group (VPG) CEO Fred Drasner spoke with FOX Business Network’s (FBN) Stuart Varney about the “Buy America” waiver and why the government is buying wheelchair accessible vans from overseas instead of from American-based Vehicle Production Group. Drasner said, “When Chrysler pulled the manufacturing out of the U.S., there was no American manufacturer making these vehicles, so they asked the Federal Transportation Administration (FTA) for an exemption, which was appropriate because there was no American manufacturer.” Drasner went on to explain that since his company, Vehicle Production Group, now manufactures these vehicles in the U.S., they’ve asked the FTA to withdraw the waiver and that, “Actually, the waiver said until there was an American product available, it stayed in force. So by its own terms, it should be over.”

Excerpts from the interview are below.

On the “Buy America” waiver and why the government is buying wheelchair accessible vans from overseas instead of from American-based Vehicle Production Group:

“Well, when Chrysler pulled the manufacturing out of the U.S., there was no American manufacturer making these vehicles, so they asked the Federal Transportation Administration for an exemption, which was appropriate because there was no American manufacturer. We manufacture our vehicles in Mishawaka, Indiana, union-made, 70, 75 percent American content. And we’ve asked the FTA to withdraw that waiver. Actually, the waiver said until there was an American product available, it stayed in force. So by its own terms, it should be over.”

On why the government is dragging their feet on rescinding this waiver: “Well, they are not dragging their feet. They appropriately put out a comment period, asked for comments. A number of people commented, including Chrysler. Ford joined in on our behest. We use a Ford (F)-power train made in America. In about 30 or 45 days we anticipate they will make a decision and hopefully they’ll make the right one. The law is clear.”

On the timeline for receiving the money:

“Well, the comment period is reasonably short, in government terms 30 days is not a foot drag and the money is available to municipalities who purchase the vehicles.”

On President Obama’s “You didn’t build that” remark:

“Actually I sort of disagree. We did build it. We brought together the typical resources you need to start a business, capital, people and an idea. Actually the employees, some 900 that work for us and our supply chain, do build it, but without the capital deployed, they wouldn’t be building it. I think it was an off-ended comment. But I think the business of America, to get America going is people starting businesses. That’s what we’ve done here.”

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Mitt Romney and Barack Obama are debating tonight having a Town-Hall style event. We will be providing live coverage of the event, expected to begin at 9:00PM EST and last until 10:30PM EST. The forum will take place at Hofstra University in Hempstead, N.Y. Mitt Romney and Barack Obama will answer questions from 80 undecided voters. Mitt Romney has surged in polls since the first debate and now has the moment. The polls are extremely close, and this debate could decide the election.

The topics of the debate is both domestic and foreign policy. The first debate focused entirely on domestic policy. Although the vast majority of our articles are related to domestic economic policy, there is a reason we are covering the debate. Besides for the fact, that I am trying to provide more and quality topics on a variety of news issues, I think that foreign policy does not get enough attention.

Every website, News channel etc. has a bias. I will be honest and note that I was going to write a lengthy article detailing the failures of Barack Obama’s foreign policy in the Middle East. I thought that not enough Americans were paying attention to foreign policy, but ,unfortunately, that changed when the US embassy in Libya was attacked by terrorists. I still plan to write a short article on what I think is by far Barack Obama’s biggest blunder in the region, Egypt. I plan to discuss a bit about Pakistan and the Osama Bin Laden raid, as well.

Libya will be a topic tonight, but Egypt with a population approximately 12x larger than Libya is a bigger issue. The Egyptian embassy attack is still murky. If the local US embassy staff wanted to protect themselves from a mob, why would they issue a statement in English on their website? Perhaps 50% of Egyptians speak English. I do not want to go on a tangent, however. It should be noted, one of the Muhammad masterminds of the Libya Embassy attack, Jamal Abu Ahmad, is an Egyptian, released from jail in early 2011. I think if Mitt Romney does not attack Barack Obama on his handling of Egypt, Mitt Romney deserves to lose. I have no idea what Mitt Romney’s foreign policy will be (he flip flops on it), but I will have a bias in this reporting. I also will be focusing more on foreign policy rather than domestic policy. Finally, Barack Obama might be able to claim honestly that the GOP forestalled many plans he had for the economy, however, this is not the case with foreign policy. The buck stops here when it comes to foreign policy (since Congress does not authorize wars these days). On that note, I will begin live coverage when Barack Obama and Mitt Romney enter the hall shortly. My views do not reflect those of other writers for ValueWalk. Many of our writers are avid Barack Obama fans, and we try our best not to have a political agenda.

9:03PM EST: 82 people from New York submitted questions, according to the moderator, Candy Crowley. The debate is taking place at Hofstra University

9:05PM: College student asks Mitt Romney about getting a job after graduation. Mitt Romney starts with thanks to everyone. Mitt Romney notes that he just spoke to someone in Pennsylvania who has the same issue. Mitt Romney states that pell grants should grow and loans should grow. He wants people to get a job, and says he has what it takes to get the economy going, and there is more debt and less jobs.

9:06: Mitt Romney notes that the middle class has been crushed.

9:07: Barack Obama thanks the student for investing in college. Barack Obama notes that it is important to create good paying jobs. Barack Obama states that he created 5 million jobs. Obama states that Mitt Romney wanted Detroit to go bankrupt. Obama wants to 1. help experts 2. improve our education system, and make it the best in the world. Community colleges should also offer opportunites 3. We need to control our own energy, thinking about the future. Wind, solar and biofuels. Obama calls for tax increases, and use money spent on war to invest in America.

9:09: Mitt Romney is asked what he can practically do. Mitt Romney notes that the unemployment rate would be 10.7% if people were still in workforce, and had not dropped out. Mitt Romney says his five point plan will create 12 million jobs. Mitt Romney says that the President took the companies bankrupt. Mitt Romney would have taken General Motors (GM) through a managed bankruptcy.

9:10: Obama responds that Mitt Romney never had a plan to have a managed bankruptcy, and this issue has been confirmed by executives from the car companies, some of whom are Romney supporters. Obama says Romney has a one point plan, and that is to help the wealthy.

9:14: Sec of Energy has said it is not the policy to help lower gas prices is that true? Obama responds that Oil production is at a 16 year high, and natural gas at a high in several decades. However, we must make more energy efficient cars, and this has led to America importing less oil. We have 100 years of energy in natural gas, but we have to use energy efficiency.  Governor Romney will allow the oil and gas companies to control the energy policy. He notes that China and Germany are controlling their own energy policy, so should we.

9:17: Romney notes that the increase of gas came from private sources and not Government sources. He notes that oil, coal, gas and renewables will be important, but the President  is preventing coal through regulation. President Obama said you can build a coal plant but the regulations will make you bankrupt. Romney says we will be energy independent, we will bring in the Keystone XL pipeline, and this will bring back manufacturing jobs.

9:17: Are high gas prices the new normal?

9:18: Obama says that Romney’s statements are not true. Romney himself cut down coal when he was Governor of Mass. Oil and gas are up. Cars are now more efficient, which will bring more jobs.

9:20: Romney says Obama cut permits by 50%, Obama says this is false. Obama says the companies have permits for public lands, and you use it or lose it. Obama took away permits but is now leasing it. Obama says coal production and jobs is not up. No one really believes you will be for energy, gas and coal. Romney says he will fight for coal, gas and oil. The proof will be the price at the pump. Gas prices and electricity prices are up. Romney re-iterates his support of Keystone XL and support for offshore drilling.

9:22: Obama states that the reason gas prices were so low when he came in, is because the economy was doing so poorly. Obama jokes that Romney’s policies will bring us back to the low gas prices. Obama says we have built enough pipelines to go around the country. Obama notes real energy jobs created.

9:23: Romney interrupts moderator, and then Obama joins in.

9:24:  Romney asked about taxes for all tax brackets and deductions will be eliminated, such as the child tax credit, education credit etc. what is your position?

9:27: Romney says he wants middle income tax payers to pay less. He notes that gas prices, health prices and many other ‘stuff’ is up. Romney says he will eliminate deductions for people at the high end. The people at the high end will still pay the same, 60% of taxes. Middle class people will get deductions, which they can decide to use. No taxes on savings, such as interest or dividends. Anyone making under $250,000 will not pay taxes on gains. Romney wants to help the middle class. He will not under any circumstances raise taxes on the middle class. President Obama’s policies will lead to higher taxes for the middle class.

9:30: Obama promised to cut taxes for small businesses and middle class families, and he did that. This is genuinely a moral obligation for the wealthy to do a bit more. 98% of Americans will not see a tax increase. Romney is holding the the 98% hostage. Obama cites Bill Clinton who raised taxes and reduced the budget. Romney said it is fair for him to pay less taxes than a nurse. Obama says his theory is completely different than Romney. Romney stated that top down economics has not worked.

9:32: Romney says that Obama’s statements are not true. Mitt Romney says this about jobs. 54% of Americans work in businesses taxed as individuals. Romney says we can do better than 23 Americans out of jobs, he says women are also suffering. Romney says he will crack down on China, help small businesses which he did in his private life, energy independence.

9:34: Obama states that lowering rates will cost $5 trillion, and Romney wants to spend another $2 trillion on military spending, and continue the Bush tax cuts. Romney says he will cut taxes and balance the budget, but he has not specifics on how to pay for this spending. Romney had very successful investments. Obama says Romney would not invest in a ‘sketchy deal’ like the one Romney purposes.

9:35: Moderator asks Romney what if it does not add up, would you be willing to re-evaluate?

9:36: Romney says ofcourse they add up. He knows how to do math, but notes that President Obama has produced four consecutive years of trillion dollar deficits. Obama will put us on a road to Greece, and increase our debt to $20 trillion.

9:37: Question to Obama. How will you reduce discrimination against gender wages? Obama notes his single mother who worked hard, but there was a ceiling to her success. However, she never complained about it. The first bill Obama signed was related to a woman making less than a man for the same exact job. That is an example of what we will do. This is not just a women’s issue it is middle class issue, as women become the breadwinners.

9:40: Pell grants which Romney mentioned will help young women.

9:42: Romney says he learned much about gender issues as Governor. He says he took a concerted effort to find women for his cabinet in Mass. Mass had more women than any other state cabinet.

9:42: Romney says in the new economy, people will be eager to hire women. In the last four years, women had a net loss of job. The thing which can help women is a stronger economy. This is what Mitt Romney has done, he knows what it takes to be done. This is not a strong economy right now, with 50% of graduates unable to find a job.

9:44: Obama says healthcare is an important issue for women. Obama says women should be in charge of their own health, unlike Governor Romney. Romney thinks that employers should make the decision about contraception. Millions of women rely on Planned Parenthood for many medical services. Child care and credits makes a difference. These are economic issues.

9:46: Question from undecided voter. She attributes much problems to the Bush administration, what is the biggest difference between you and George W. Bush?

9:48: Romney first responds that bureaucrats and employers should not make women’s decisions. Romney says times are different than Bush’s times. Bush was weak on China, I will also grow free trade in Latin America. I will balance the budget, Obama was right that Bush’s plans for more deficits were outrageous. Romney says that the GOP has focused too much on big business, Romney wants to focus more on small business. The most troubling thing about Obamacare is that it is preventing people from hiring.

9:50: Obama notes that he entered office during extremely difficult times and he will do more to expand jobs. Obama notes that Romney’s companies invest in outsourcing companies in China. Obama brought twice as many fair trade practices than the previous administration. Obama stopped China from preventing Chinese tires flooding in.

9:51: Obama notes Romney is different than Bush, Romney is more of an extremist.

9:52: Voter from 2008 asks what Obama did to deserve his vote in 2012? Obama says he killed Osama Bin Laden, ended the Iraq war, put in healthcare reform, cut taxes, reign in excesses of Wall Street. We created 5 million jobs and saved the auto industry. Many are still struggling, that is why Obama needs a second term to continue these policies and commitments he made.

9:54: Obama says Romney has made some promises which you should note. He refuses to raise taxes a dime, will repeal Obamacare (despite it being the same healthcare plan in Mass), and will cut Planned Parenthood.

9:56: Romney: If you elect Obama you will get a repeat of the last four years. He had promised nine million more jobs. He said he would reform Medicare and social security, he has not put forward a plan. He said he would cut the deficit in half while doubling it. Healthcare for middle class has gone up $2,500 despite Obama’s promise to decrease it by that number. The number of people looking for work is 23 million.

9:57: Romney: All Obama’s policies are hindering growth. Ronald Reagan’s cut of taxes produced far more growth. Obama is great as a speaker and has a vision, but he cannot deliver.  This election is about a bright and prosperous future.

9:58: Question for Mitt Romney. What will you do for immigrants without a green card?

10:01: Mitt Romney notes he has Mexican heritage and this is a nation of immigrants. People with skills should get green cards. The legal system does not work. Illegal immigration must stop. He will not grant amnesty. He plans an employment verification system. He would not give drivers licenses to people who came here illegally, but their kids should have a pathway to get citizenship. Obama claimed he would reform immigration but failed under a Democrat house and senate.

10:03: Obama says we are a nation of immigrants and laws. Obama says he has done everything he could to streamline the immigration process for people obeying the law. This is good for economic growth. Obama says the border is more secure now. People here illegally, should only be deported if they committed crimes. Young people brought by their parents and who placed allegiance should have a pathway to citizenship. Romney says he will veto the Green Act. He says he would encourage self deportation, he called the Arizona law a great system.

10:05: Romney says that the Arizona law is not a model, Romney states he was only referring to the e-verification part. Romney asked again why Obama did not pass immigration reform. It has been four years and the President has not honoured his word. Romney says he will not round up people, he will allow them to make their own choices. He does agree that criminals should be deported.

10:07: His investments are in a blind trust. Romney asks Obama if he looks at his pension. Obama jokes that he has a lot less money. Romney notes that Obama also has investments in China.

10:08: Barack Obama: People still see America as the land of promise. It should not be a divisive political issue. He says the GOP has not been serious about this issue.

10:09: Question for Obama. The State Department denied security for Libya, who denied it?

10:11: Obama: there are diplomats all over the world. He gave instructions to beef up security, but Romney put out a press release with political points.  Obama means what he says, he has gone after Osama Bin Laden and has gotten out of Iraq. Obama promises to hold accountable for Libya attack, and he is responsible for what happens.

10:13: Romney notes his condolences. He notes there were issues associated with this issue. It took a long time for the truth to come out. What is more troubling to Romney, is the Obama’s response the day after flew for political events. These have significance. He should have been focusing on the attack. Romney notes the problems with Israel, Iran, Syria and Egypt.

10:14: Hilary Clinton took responsibility where does the buck stop?

10:15: Obama says that Clinton works for him and notes that he was grieving with the families. Obama says no one would mislead or lie, and it is offensive to suggest that.

10:17: Romney notes that it took 14 days for Obama to call the attack an act of terror. Romney says that it took a long time, am I incorrect?

10:18: Question to Obama. What have you done to keep assault weapons out of the hands of criminals?

10:19: Obama notes that there have been many shootings lately. Obama discusses the personal visits to victims of shootings.

10:20: Obama believes that ‘weapons for soldiers don’t belong on our street.’ He wants to re-instate assault rifle ban, but in Chicago many violent crimes come from cheap hand guns. Obama wants a comprehensive strategy.

10:22: Romney says that gun laws should be enforced, but does not favor more regulation. He thinks education is important to reducing gun violence. He also thinks the Government should encourage parents to get involved and teach children. The biggest failure was Fast and Furious, thousands of weapons were given to drug lords to kill Mexicans and Americans.

10:23: Romney says there are many unanswered questions about Fast and Furious scandal.

10:23: Romney asked why he changed his stance on guns from his days of MA?

10:24: Romney notes the circumstances in MA and now.

10:25: Romney changed his stance to get the support of the NRA, says Obama. However, Obama agrees on education. Obama says education reform put in place has been a phenomenal success.

1026: Obama says Romney does not think hiring teaches helps the economy.

10:26: How will you stop outsourcing?

10:30: Romney says he will make it attractive to come here. He mocks Obama by calling the President’s policies ‘trickle down government.’ China is artificially depressing their currency which helps Chinese exports. China is a currency manipulator, Obama refuses to call them a currency manipulator. But the key is not to punish people, the key is to make America the most attractive place in the world. Canada has a lower corporate tax rate, we need to be competitive. Regulations quadrupled under Obama, small business owners state that they feel like they are under attack. Obamacare is a big problem and related to this. This is why income is down.

10:32: Obama states that he also wants to lower tax rates and close loopholes. Obama claims that Romney wants to encourage outsourcing. Obama says Romney will create jobs in India, Germany and China. Obama states he is close to doubling exports. Romney talked about China. Obama states again that Romney’s company invests in outsourcing.

10:32: It is much cheaper to create iphones and ipads in China how will you stop this?

10:33: Romney says America can succeed against everyone, he was cut off by moderator.

10:34: Obama says some jobs will never come back. Obama says we need to train in high tech jobs to bring companies here.

10:34: Question what is the biggest mis perception people have of you?

10:36: Romney says he wants to help 100% of Americans, Barack Obama has tried to cast Romney for the person who he is not. Romney has done charitable work and got 98% of people insured. He can get this country on track. We do not need to settle for the economy today.

10:39: Obama says that Government does not create jobs. Free enterprise creates jobs and individual initiative  but he believes everyone should have a fair shot, that is how the economy is grown.  Obama notes there is a fundamentally different vision. Obama notes the famous 47% of Americans comment, while noting that Romney is a ‘good man.’ Obama says the 47% are soldiers, retires  people who do not make enough. Obama says he is fighting for them.

Conclusion: Debate is over. The pundits will weigh in. Very little sustenance and lots of rhetoric. Barely ANY foreign policy, despite it being a theme. China bashing is a bipartisan election issue currently. Overall, disappointing, and it appears like a tie.

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Jean-Marie Eveillard, Senior Adviser, First Eagle Funds sits down for a lengthy interview with The Manual of Ideas. The interview lasts over one hour and twenty minutes. Jean-Marie Eveillard, the value investing legend, talks about a wide variety of topics. He starts off noting the differences between bottom up and top down investing.  He then starts talking a bit about economics and politics.

Jean-Marie says that Keynes is brilliant, but in the end ‘was a quack.’ He believes that by the 1970s, neo-Keynesians.  He thinks that politicans have promised too much and that money for all purposes is free. He notes that inflation is a creation of money and too much credit, and that the Consumer Price Index had major changes in 1980. He states that using that metric, inflation is closer to 6 or 7 percent.

Eveillard then talks about value investing in the current macro environment. He believes that the default best investment is now equities, and Ben Bernanke is pushing investors towards that asset class. Investors need to do work for bottom up, but keep an eye on China, India, Europe, Japan, The US. He thinks it is clear that the East will rise in the long term. Investors should be cognizant of this long term change.

The full video is embedded below:

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Bloomberg Hedge Fund Summit 2012: next up, Allan Meltzer, The Allan H. Meltzer University Professor of Political Economy, Tepper School of Business, Carnegie Mellon University and former Fed Governor, Laurence  (Larry) H. Meyer debate macro policy.

Meltzer is scared about inflation, and says that no one should have the power to create as much power as the Fed, which has ballooned its balance sheet. He calls the power dangerous. He says people are buying farmland, TIPs, and other signs that inflation is picking up. However, it has not shown up in numbers, because companies consider to cost save. As long as labor costs remain low, inflation will stay low.

Larry says that he disagrees with everything Meltzer says. Meltzer is worried that the Fed cannot get inflation up to 2% and keep it there, it is currently at 1.6%. His model is inflation is based on expectations and economics slack. It is not proper to call the Fed irresponsible, because we are in extraordinary times. Does it work is the main question. And the answer is that it does work.

Meltzer is in favor of doing things to lower unemployment. The Fed has made the mistake to confuse real and nominal. We have lowest interest rates in history and $3.5 trillion in reserves, creating more reserves will not solve anything.

Larry says that Allan and people like him do not worry about short term or employment, they only focus on long term.

Allan says that in the 99 years of the Fed we only had stability under the Taylor model, and perhaps the Eisenhower era.

Meyer admits that the Fed has become more aggressive than usual.

Allan believes that the Fed cannot reduce unemployment, and there is a reason they are cost cutting. They do not trust this Government, energy costs, healthcare, taxes regulation etc. This is a real unemployment problem and it is not a monetary policy, there is more than enough reserves.

Larry says that excess reserves do not matter at all. He says that Allan worships money supply, which does not appear in macro models. The question is if you purchase MBS will it lower rates.

Allan says he understands why the market loves QE, but it does not have a good impact on the real economy. He says reserves do matter because they can be converted into real money. He thinks Bernanke pays too much attention to short term events, and dont distinguish between temporary and permanent changes, such as the various rounds of QE.

Larry says that QE has nothing to do with seasonal factors, which Larry hinted to. He admits that the exit strategy for the Fed will be difficult, but they have a plan for it. Larry says that Allan wrote ‘the book on the history of The Federal Reserve’, but it had nothing to do with modern monetary policy, which began in 1987.

Meltzer says that the Taylor rule was abandoned for no real reason. The Fed pays too much attention on day to day changes. There is never a statement from the Fed about what will happen one year out.

Larry counters that monetary policy has nothing to do with what happened in the 1920s. Ben Bernanke does not look at what happens on a day to day basis.

Allan says that the Fed forecasts make big errors, as do all economists. Meltzer jokes that he can predict history very well.

Larry interviewed Michelle Bachmann and asked if cutting $100 billion in spending would lower the unemployment rate within a few months, and she answered yes.

Allan does not understand Barack Obama’s policies, he says the President is too interested in redistribution policies than economics.

Will market vigilantes come into the market? Larry says that markets will react responsibly if a deal is not made on the fiscal cliff. Allan says the GOP have difficulties compromising and the President cannot compromise, the market will go crazy. He says good presidents 1. know how they are 2. know how to lead 3. know how to compromise, Obama has zero.

Note: The debate was very comical, laid back, yet informative and entertaining. The debate was extended several minutes, since it was so popular.

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Robert Wolf, founder and CEO of 32 Advisors and former member of President Obama’s Job Council, in an interview to appear tonight on FOX Business Network’s (FBN) Cavuto (8PM/ET) discusses the government’s involvement in the housing market. Wolf said, “we need to get the private sector back into the housing market from a lending perspective” and that “I am sure the government would like to get the hell out of that.”

On whether the government has been too involved in areas it shouldn’t be:

“We need to get the private sector back into the housing market from a lending perspective, and by the way, I am sure the government would like to get the hell out of that as well.”

On President Obama pulling the plug on his Job Council:

“It was a two year charter, so not surprisingly the charter ended – let’s talk about what was done. The first year was really a lot of work together to figure out  ideas to make the U.S. more competitive. We came up with ideas, we had the Better Building Initiative, you have the Infrastructure Fast Permitting Initiative, you have Small Business U.S.A. Initiative, and I can keep going with travel and tourism initiative – that had winds. The second year was about execution, which we’re executing, so, and the proof is working because there are winds from this.”

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Wilbur Ross was recently on BNN for a lengthy interview. Ross talked about a wide variety of topics, starting with the US economic recovery. Wilbur is bullish and has stated in the past that the shale revolution can help reduce the Government deficit. Ross thinks that housing is possibly showing signs of light but business inventories and trade data was a bit more mixed. The first segment gets a lot into taxes and politics in particular. Below are links to the full half hour interview:

Part 1

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I found this discussion online via Tyler Cowan’s excellent blog “Marginal Revolution”. I sent it to our “Davidson” since he has written the most I have seen on it to date. His response is at the end….

Krugman offers a full argument with graph, which you should read in total, but here is one bottom line summary:
When I say that the rate is too high, I mean relative to the rate that would produce full employment, which is, as Brad reminds us, Wicksell’s “natural rate”.
And here is his opening bit:

One of the baffling aspects of economic debate during this Lesser Depression, or so it seems to me, is the apparent urge of many economists to shy away from straightforward conclusions, the urge to make the simple complicated and the clear blurry.

If you’re asking what is at stake, it is whether we should be confident or even mildly confident about any predictions made through a liquidity trap model.  I’ll stick with a few points, which I will put under the fold…

1. I am persuaded by Scott Sumner that, at least these days, the interest rate channel is not very important.  Given that, one still can favor looser money, or at the very least think that tighter money would make things worse, even if the gains from looser money have by 2013 mostly come to an end.

2. I am struck by the remarks of Angus that:

Again and again I see the economy’s problem described along these lines:

“At the ZLB (zero lower bound), the real interest rate is too high to get us to the optimum. The nominal interest rate cannot fall any further by definition. So to get to the optimum the expected rate of inflation must rise.” Those are Simon Wren-Lewis’ words (they appear in a comment at the link), but Krugman and many others tell roughly the same story.

As always, I have questions.

In the IS/LM framework many (not Wren-Lewis) are using, doesn’t this mean that we are getting “growth” by firms investing in projects with a negative NPV now made profitable by an even more negative discount rate?

Second, how is that inflation expectations rise and the nominal interest rate remains unchanged?

Brad’s rather abstract talk about “lower” interest rates does not deflect me from recognizing this visceral wisdom from Cherokee Gothic.   I am sorry, but on this one I have to vote for “complicated,” not “simple.”  I will gladly admit that I do not myself have the final answers here.

3. It is not always useful to talk of “*the* interest rate” and apply that across both Treasury securities and the private sector.  Our government can borrow at some negative real rates, but are we really to think that the private sector is looking at negative rates of return in the United States?  Hardly.  Wicksell, yes, but in this case we need some Sraffa too.  Some kind of asset segmentation is going on, as David Beckworth and others have stressed, and that segmentation does matter a great deal for the transmission belt of monetary policy, at least to the extent you believe in an interest rate mechanism.

4. This is a side point, but it is Brad who doesn’t get Wicksell and Wicksell’s theory of the natural rate of interest.  Brad blogged:

The large demand for relatively safe assets like U.S. Treasury securities means that the interest rate consistent with full employment–the “natural” interest rate, in Wicksell’s terms–is lower than normal, and the natural rate is in fact less than zero.

On the natural rate of interest, what did Wicksell actually write?:

There is a certain rate of interest on loans which is neutral in respect to commodity prices, and tend neither to raise nor to lower them. This is necessarily the same as the rate of interest which would be determined by supply and demand if no use were made of money and all lending were effected in the form of real capital goods. It comes to much the same thing to describe it as the current value of the natural rate of interest on capital.

That’s from the beginning of chapter eight.  Now it’s more complicated than that, as Wicksell juggles and sometimes equates three or four different definitions of the natural rate of interest, not to mention the contrast between the natural rate of interest and the normal rate of interest.  David Laidler once referred to the “Wicksellian muddle.”  Still, DeLong is barking up a different tree.

Brad also chides me for neglecting “basic Geldzins und Guterpreis”, but speaking of basics he neglects the umlaut and also the plural on “price”, so it should be “Güterpreise“, the German-language title then being translated somewhat inexactly into “Interest and Prices.”

5. Stephen Williamson has some interesting comments on the issue.  John Cochrane hasan excellent post on this entire question, and it will not push you into thinking the matter is simple.   I also recommend these Scott Sumner remarks.
You will recall Cowen’s Third Law: “All propositions about real interest rates are wrong.”

 

“Davison” responds….

They all miss it. The “natural rate” is the rate of growth of one’s society, the Real GDP, added to inflation, i.e. GDP. This is not the rate which full employment occurs. Actually, full employment never occurs because there are always people switching jobs which has been estimated at ~3%, called employment friction, and there are a percentage of unemployable people ~2%, i.e. mentally unable to hold a job and etc.

 

The “natural rate” as Wicksell stated it is a capitalization rate about which securities and business returns are priced over the business cycle. His language implied arbitrage about this rate. Society did not seem to know this rate specifically, but seemed to be able to over time price asset returns by selling debt to buy stocks and businesses, i.e. equity and then sell equity back to debt in the search for returns. Wicksell did not have the economic data to measure the rate, but he knew it was there. Many, like Wesbury, use the 10yr Treasury rate as a proxy. The low rates today have forced Wesbury to use a 5% historical average while others have simply stuck to today’s 10yr rate as valid.

 

If one reads our history and I do not mean the history of market prices, but the history of human decisions across time with regards to market thinking, i.e. how key individuals have thought about market values over history, you come to understand that this has been the search of generations. If you use Wicksell’s rate in his simplest statement, then it becomes a market cap rate for pricing stocks, businesses and debt.

 

Because inflation varies dependent on human & govt spending behavior, one analyzes Real GDP for the society value creation trend and then adds back in current inflation. Inflation cannot be predicted so it must be followed as a best effort. Investors do not respond to inflationary trends immediately nor do they respond to good or bad economic data immediately. The Recency Effect causes us to generally view all current information in light of the past ~3yrs.  The relationship with the “natural rate” is there but it is “fuzzy”. It is most prominent at market lows because no one is overpaying for the future. This is where Buffett, Ross(Wilbur) and others can see the long term value and buy equities at market lows. When the market rises they can see that the price rise causes the long term returns to fall and they stop their buying.

 

The “natural rate” is the long term Real GDP trend + inflation. I use for inflation the Dallas Fed 12mo Trimmed Mean PCE. For the SP500 I use the long term mean earnings because this is what Buffett and others use in their heads to decide what to pay for assets. When they buy assets, they have these long term average returns in mind.

 

Krugman and others over think things and insert too much political agenda. They just don’t get it. They do not think long term enough to see the simplicity of it all. Wicksell without the data but what he could observe did get it, but then tried to discuss it thru using other aspects of society. Too bad he did not have the data we would not have been in the muddle we have been the last 115yrs.

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Christine Lagarde, IMF managing director told Bloomberg TV‘s Sara Eisen on “Market Makers” today that the ECB has done “an awful lot” to stabilize the Europe’s economy and that, “for the last couple of years, it’s just incredible how much out of its traditional boundaries it has gone.” Christine Lagarde said that, overall, she is “deliberately, decisively, desperately optimistic, yes…I think there’s some good news.” Christine Lagarde also said that the IMF welcomes Japan’s recent monetary policy changes: Japan has “clearly innovated.”

Video and excerpts below:

Christine Lagarde on what the ECB should be doing:

“The ECB has done an awful lot. For the last couple of years, it’s just incredible how much out of its traditional boundaries it has gone…It’s the only central bank that still has a bit of space. And I trust that they will be using that space when they feel that it will be most useful and they have the biggest leverage effect. What’s in it? It’s not just the sake of reducing rate. It’s making sure that it travels to the real economy and that the banks that lend to SMEs, to households, will actually apply a lower rate as well. So it might be that to restore the fluidity, a bit of work needs to be done at – at the other end, at the receiving end.”

Christine Lagarde on actions by U.S. and Japan’s central banks and whether the expectations that they are setting are too high:

“Well, the unemployment target has always been part of the traditional targets of the Fed in the US. The Japan central bank has clearly innovated by pushing the inflation target from 1 to 2, by doubling the monetary mass by a factor of two, by deciding to do so within two years. It’s a two, two, two, two, which we welcome, which needs to be completed though by two other principles that have to do with structural reforms in Japan. Very much needed. Anybody who wants to enter the Japanese market will tell you so. And also the fiscal consolidation plan that needs to be anchored to reduce the Japanese deficits and the debt of Japan.”

Christine Lagarde on whether she’s optimistic:

“I’m deliberately, decisively, desperately optimistic, yes…I think there’s some good news. The fact that the average debt around the world has stabilized, too much there is of it. It has now stabilized and the deficits on average has been halved since the beginning of the crisis. So there are some good news. It’s a question of keeping at it and pursuing the major reforms that have been initiated.”

Christine Lagarde on what the prescription is for dealing with different economies around the world that are recovering at different paces:
“We would like to move to full-speed recovery and not three speed. It would be far more efficient and there would be more spillovers between the various zones. For the moment, we have that three speeds. We have the emerging market economies and low-income countries. We have – moving very fast and doing quite well. We have the second group which is on the mend, which has done quite a bit of work, particularly on its financial sector.”

Christine Lagarde on the IMF downgrading global growth forecasts:

“First of all, let me observe that we have slightly downgraded, but we are moving up from last year a little bit, not much, but up. So the global economy is growing thanks to essentially the emerging market economies and the developing market economies. So it’s growing. What in our view could help it to grow better and faster would be the completion of the financial sector reform, would be the completion of the rebalancing between the various economies, and would be a clear focus on a sensible fiscal consolidation path, and could – in the medium term – and specific measures intended to develop growth, jobs and equity. So you have two – it has to walk on two feet. And one is a set of combined policies that are specific to each of the three groups, and those three construction sites, if you will, that have started but need to be completed.”

On the IMF’s criticism of the fiscal path of the U.S. and what we are missing:

“Time. Because what is needed is clearly fiscal consolidation, but good fiscal consolidation, not blind…Blind and blunt is the problem. Sequestration produces just that. And we need fiscal consolidation upfront, but not too much of it. At the moment, we see too much of it. 1.8 percent fiscal consolidation is too much at the time. But the US also needs more fiscal consolidation in the medium term, and clearly anchored, clearly communicated so that economic actors know what to expect and know that the determination of the US authorities is to bring the debt down not by cutting now so strongly, blind and blunt, as I’ve said, but over time and making it irreversible.”

Christine Lagarde on whether the IMF is a defender of austerity on a global basis:

“We are not exclusively focused on fiscal consolidation, which is the scientific word for austerity, if you will. We are very concerned about the right balance, and that means lots of things. If you look at the policy mix, it means fiscal consolidation, yes, in all advanced economies pretty much because they are heavily indebted, and they are running deficits and have been running deficits for most of them. But it also means the right monetary policy in order to encourage growth, in order to lower interest rates in the long term. It also means structural reforms. Because in many economies, including advanced economies, you have bottlenecks. There are areas of business where one cannot go without having the right license, without having the right permission, without having the right set of attributes that very often are really obstacles in the way of unleashing the entrepreneurial spirit that is in each of us. So not just about austerity, but a combination of those three is very often needed.”

Christine Lagarde on Europe’s austerity measures:

“Most of them have to do some fiscal consolidation because they are heavily indebted and because they have and they are running and they have been running large deficits. But it’s a question of how much and how quickly. And for some of them, there is no reason to rush into upfront, heavily-loaded fiscal consolidation. Look at the Netherlands, for instance. They just decided, and I think they rightly did so, to reduce the pace, to continue to do it, but to allow a bit of time in order to let growth prosper, which is clearly needed and makes fiscal consolidation much easier.”

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Economics

CFO of United Parcel Service, Inc. (NYSE:UPS) talked about two scenarios for rises in interest rates: good: improvement in productivity, bad: stagflation. Senator Ben Cardin said “We know that if interest rates go up it would make it very difficult for the Federal Government to participate in creating growth.” (As if the government can create growth without getting out of the way.)

Cardin also Congress has schizophrenia about the Fed.  He asked if we would rather have Congress run monetary policy.  I would say someone has to be responsible to the electorate over monetary policy. Central Bank independence is nice in concept, but what if you get a bunch of deluded idealists who believe in an untested policy, like we have today?  As voters, we need to have the ability to replace them, or better, limit the abilities of the central bank so that it doesn’t matter so much what they do.  Then Congress will have to take hard actions, knowing they can be replaced in a few years.

“Yellen has right of first refusal at Fed, as the next Chairman,” Laurence Meyer said.  Another commented that the Vice-Chair has never succeeded the Chairman before. Personally, I think she would be worse than Greenspan and Bernanke.  More dovish than both.  Maybe bring on Warsh, Lacker, Prosser, etc.

US Postal Service

Cardin commented “I don’t think outsourcing saves money for government.”  I would agree, but it means returning to a government with more bodies, paid less, and limiting the influence of lobbyists.  It also means reducing complexity in laws and regulations.

He also commented “I believe that the role of the Post Office is universal service and overnight delivery is part of that.”

One twitter commenter wrote: USPS Corbett is asked if we even need the postal service. Quick answer: Yes. Audience quietly whispers: “Dinosaur.”

USPS CFO thought there was a long-term solution. He wants regulatory changes, allowing delivery of alcohol, and other things prohibited now. He wants more independence from current regulations.

Lunch

I had delicious food and good conversation at lunch. I sat with Tom Keene & my former professor Steve Hanke of Johns Hopkins & the Cato Institute.  The two of them talked about their mutual experiences at the same school in Colorado for undergraduate study.  Keene asked what he should ask Krueger on unemployment.  The table volunteered a number of good ideas, mine was to ask whether the higher unemployment wasn’t structural because of global competition.

China

Here are a few tweets, none written by me:

Once again, I got the final question:

By David Merkel, CFA of alephblog

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Salt Conference 2013 Las Vegas Coverage brought to you by ValueWalk.

Salt Conference 2013 Las Vegas Coverage

The Salt Conference Las Vegas kicked off Tuesday night the 7th of May. It featured a ‘VIP dinner’ with Nouriel Roubini. However, the newsy part of the conference begins today and goes through Friday May 10th. Many famous and insightful investors/economists/politicians (and pundits) will be speaking at the conference. We will be providing both live blogging of the event as well as in-depth analysis. This is a jam packed week. We earlier brought you coverage of the Value Investing Congress in Las Vegas. Additionally, we are covering Ira Sohn Conference on Wednesday May 8th.

Six options: Salt Conference 2013 Las Vegas

Readers can always come visit the site frequently/ hit refresh to find the latest. Other (and easier options include) following us on  Google+, Linkedin, Twitter, Facebook,  RSS,  where we will be posting live coverage. You can also sign up for our newsletter to get coverage of the event at 3PM EST (make sure to select business and daily under the options). All of our articles containing analysis will be linked here  Therefore, this is the ONLY page on ValueWalk you need to visit to find all of our coverage of the event since everything will be linked here.

Wednesday May 8, 2013 Day 1 Salt Conference 2013 Las Vegas

NOTE: Links will not be live until the event begins.

8:45 AM – 9:25 AM EST: Mapping the Course: A Global Macro Economic Forecast

Link to coverage

9:30 AM – 10:10 AM EST: Survival of the Fittest: Current Trends & the Evolution of the Hedge Fund Industry

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10:40 AM – 11:20 AM EST: Covering Your Assets: A Crash Course on Investing in a Macro Driven Environment

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11:25 AM – 11:55 AM EST: A Balancing Act: Best Practices to Optimize Performance

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1:35 PM – 2:20 PM EST: Mastering Mortgages: Navigating Today’s Landscape to Capitalize on Tomorrow’s Opportunity

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2:25 PM – 3:05 PM EST: Extra Credit: Investment Strategies and Opportunities Across the Credit Spectrum – Hosted by State Street Corporation

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3:10 PM – 3:50 PM EST: Staying Ahead of the Curve: Identifying Opportunity Sets in Alternative Asset Allocation

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4:30 PM – 5:00 PM EST: One-on-One with John Paulson

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5:05 PM – 5:50 PM EST: A Conversation with Prime Minister Ehud Barak and Secretary Leon Panetta

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Thursday May 9, Day 2 Salt Conference 2013 Las Vegas

8:00 AM – 8:40AM EST: Real Issues, Real America: Putting Citizenship over Partisanship

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8:45 AM – 9:25AM EST: From Response to Resilience: Confronting Global Fiscal Policy Challenges

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9:30 AM – 10:00AM EST: Future Imperfect: Institutional Investor Challenges, Insights and Perspectives

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10:30 AM – 11:00AM EST: Anatomy of a Trade: A Conversation with Daniel Loeb

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11:05 AM – 11:45AM EST: From Peril to Profit: The Art of Activist and Distressed Investing

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11:50 AM – 12:30PM EST: Inside Access: Top Investment Picks and Viewpoints for the Year Ahead

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2:00 PM – 4:00 PM EST: Track A -Hedge Fund Strategy Spotlight Hosted by:  SPDR® Gold Shares

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2:00 PM – 4:00PM EST: Track B – Hedge Fund Roundtable Hosted by PricewaterhouseCoopers (PwC)

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2:00 PM – 4:00 PM Track C – Real Genius – How Science Impacts our Future

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2:00 PM – 4:00PM EST: Track D – Special Presentations

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Friday, May 10th, Salt Conference 2013 Las Vegas

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Joshua M Brown over at the Reformed Broker drew some interesting parallels between Iron Man alter ego Tony Stark and Tesla Motors Inc (NASDAQ:TSLA) CEO Elon Musk in an infographic today. There certainly are some interesting parallels between the billionaires.

Tesla Motors (TSLA)’s Elon Musk vs Tony Stark

The infographic starts with basic metrics, height, weight, net worth, parentage and so on, and the parallels get interesting when it comes to education. Tony Stark earned a masters in physics, and another in electrical engineering. Elon Musk has his primary bachelors degree in physics, with a masters in economics.

Both men are career inventors, and both have excelled in areas of the economy that few have the courage to attempt innovation in. Elon Musk has given us the electric car with Tesla Motors Inc (NASDAQ:TSLA), solar power with SolarCity Corp (NASDAQ:SCTY), electronic payments with Paypal, content hosting with Zip2, and the world’s first successful private space company SpaceX.

Tony Stark offers us something slightly different, but much of it is just as fantastical as Musk’s offerings were just a couple of decades ago. Stark’s notable inventions include the Iron Man suit, and its attendant underlying technology, and the iconic S.H.I.E.L.D air carrier.

Tony Stark’s future offerings include a source of cheap energy, based on the reactor he has implanted in his own chest. Musk may already have given us a source of clean energy with his company SolarCity Corp (NASDAQ:SCTY). His future projects include the Hyperloop, an advanced transport system that could have come out of the realms of Marvel’s Science fiction.

The similarities certainly outweigh the differences. The men are physically similar, they’re both citizens of the United States, they both followed their father’s career paths, both have public, and convoluted romances, both have revolutionized technology and both are working toward further technical revolutions.

There are differences, however. Stark and Musk have different birth places, Musk was born in South Africa, and their physical appearance is mildly different. The most important differences are, however, the lack of a robotic suit on Musk’s part, and the lack of a corporeal form on the part of Tony Stark.

Elon Musk might not quite be Tony Stark, but that’s probably a good thing. As long as the firms he starts, like Tesla Motors Inc (NASDAQ:TSLA), keep being as successful has they have been, he’ll change the world, and he’ll probably bring about more positive change than Tony Stark could dream of.

via: TheReformedBroker

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Volatility, they say, is a friend of value investors. But the crisis of 2008 proved to be an exception to the rule. Take the case of Charles Brandes, the 70-year-old founder of Brandes Investment Partners, who saw assets under management wilt from an eye-popping $111 billion at the end of 2007 to around $21 billion in a span of five years. But the turn of events has not shaken the confidence of the dyed-in-the-wool value investor, who believes that so long as human nature doesn’t change, value investing will remain an effective long-term investment strategy. Incidentally, Brandes is among the privileged few to have legendary value investor, Benjamin Graham, as a mentor. Their relationship began in 1972 when Graham walked into a brokerage where Brandes worked, wanting to buy a stock. Those initial learnings from Graham have since become the foundation of Brandes’ investment philosophy for the past 39 years. Among the very first to have started investing in emerging markets way back in 1982, Brandes believes that while volatility can distort prices in the near term, the value of a business is eventually reflected in stock prices over the long term.Tell us about how you got to meet value investing doyen Benjamin Graham.

I was very interested in economics and had embarked on an investment career in 1968. The late 1960s was a go-go era with a lot of hot new initial public offers (IPOs). The onset of the bear market in 1970 wiped out all these new concepts and the market was down 40-45%. One couldn’t have had a more stomach churning initiation. I didn’t know what to do as I didn’t have any guidance or an investing philosophy. I was still looking around and one day Benjamin Graham walked into the brokerage office, where I was working, to buy National Presto Industries. And since I was the designated person to greet incoming people, I got to interact with him. Soon after, when I paid a visit to his office, he kept asking me a lot of questions for which he already had the answers. For me, as a rookie, it was unbelievable that I was being asked questions to guide Benjamin Graham! I did have a few opinions even at that time, though.

Had you read any of his books before you met Graham for the first time?

I had read Security Analysis but not The Intelligent Investor. But after meeting Graham, of course I read The Intelligent Investor very carefully.

Via Business.OutloookIndia

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