FYI:
Regards,
Ted
March 21, 2019
Dear WEALTHTRACK Subscriber,
This week’s guest, Paul McCulley was one of the few economists not surprised back in January when the Federal Reserve reversed course and abruptly halted its projected tightening strategy. At the time McCulley told me that the Fed was “essentially finished.” Lo and behold this week the Fed pretty much made it official projecting only one more rate hike in the next three years and reducing the liquidation of the Treasury and mortgage backed securities it is holding on its balance sheet. (Strategas Research predicts the assets on the Fed’s balance sheet will stabilize at around $3.7T by September and remain there for the foreseeable future. That is down from around $4.5T last year. For some perspective, the holdings were $800B pre-crisis!)
Few investors have McCulley’s prescience which is why I asked him to join me for a conversation a few weeks ago. We had to hold it because of spring pledge weeks on public television, but his remarks are just as fresh and even more impressive considering the Fed’s decision this week.
Paul McCulley is Senior Fellow in Financial Macroeconomics and Adjunct Professor of Law at Cornell Law School where he teaches a multi-disciplinary course for law and business school students combining economics, monetary policy, global finance and behavioral finance, as well as sharing his professional experiences. Before his part-time academic career we had identified Paul as one of our Great Investors and Financial Thought leaders. He was a Senior Partner at PIMCO; founding member of its Investment Policy Committee along with firm founder Bill Gross; author of the influential monthly “Global Central Bank Focus” and manager of PIMCO’s huge short term trading desk overseeing an estimated $400 billion dollars in assets.
McCulley retired from PIMCO in 2010 to write, think, speak and otherwise lead a more balanced life, which he did until a brief interruption in 2015 when he was lured back to PIMCO for a few months as Chief Economist by his former boss and close friend Bill Gross before Gross left the firm for another. McCulley has since resumed that more balanced and still full life with teaching thrown into the mix, which he will talk about in our exclusive EXTRA feature on our website.
I mentioned McCulley’s prescience. Long before the 2008/2009 financial crisis he identified the powerful and destructive rise of what he called the “Shadow Banking System,” the unregulated institutions feeding the housing and credit bubble. And he coined the phrase “Minsky Moment,” after economist Hyman Minsky’s theory that financial stability, as this country had during the Alan Greenspan Goldilocks era, ultimately leads to financial instability as people and institutions take on more and more risk. That is exactly what happened and as we all know too well resulted in the housing bubble, ensuing credit crisis and what is called the Great Recession.
We asked McCulley to give us his views of the current state of the economy, starting with the forces he sees building in the economy now.
If you are unable to join us for the show on television, you can watch it on our website over the weekend. If you’d like to see it earlier, it is available to our PREMIUM subscribers right now.
If you would prefer to take WEALTHTRACK with you on your commute or travels, you can now find the WEALTHTRACK podcast on TuneIn, Stitcher and SoundCloud, as well as iTunes and Spotify.
Thank you for watching. Have a lovely first official weekend of Spring and make the week ahead a profitable and a productive one.
Best regards,
Consuelo
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