Who Is Right; Santelli or Liesman?

Yesterday Rick Santelli got into it with Steve Liesman on CNBC.  It’s not the first time they have tangoed.  Is either of them right?  First the video:

Paul Krugman chided Santelli for not liking poor people. He also didn’t understand why floor traders were clapping. We like a good heated argument, and hate government intervention. Floor traders don’t hate poor people either. They are pretty charitable.

Santelli has never railed against poor people.  He rails against big government, big government solutions to problems, and big government spending/programs.  Why does anyone read Krugman anymore?

he hates the poors, he hates people who want to help the poors,

What about some data? Here is a Ycharts plot of CPI. US Consumer Price Index Chart

US Consumer Price Index data by YCharts

Looks to me like prices are higher. Is that because of the Federal Reserve printing press? Is it because there are core supply and demand forces causing higher prices? Is it because of government subsidies that artificially inflate prices? That is certainly open to debate.

What about inflation? My friend David Altig Fed economist in Atlanta says trimmed mean PCE is best stat on inflation. Here it is. US PCE Inflation Rate Chart

US PCE Inflation Rate data by YCharts

What about economic growth? Traditionally the measure for macroeconomists is GDP. You can see that GDP is anemic. This proves to me the multiplier effect of government spending is indeed 0, or negative. We also know wages are not increasing, and unemployment is pretty bad. Additionally, the labor participation rate is at its lowest level ever. Ironically, government transfer payments like SNAP, unemployment benefits etc are at their highest level ever. US Real GDP Growth Chart

US Real GDP Growth data by YCharts

But we know the stock market has taken off since the Fed QE program. It’s been on a tear. Why would that be given the data above? Risk/Reward and lack of participation. Only wealthy people can take advantage of 0% interest rates. Banks have no incentive to lend since money is free to them and they can earn 2-3% on it. The velocity of money is stalled.

Corporations have cut labor and production costs.  Profits are up.  But they aren’t really investing in new production because there isn’t demand.  They are buying back stock like nobody’s business and that artificially messes with earnings per share.  It doesn’t do anything for economic growth. The middle class and poor haven’t participated directly in the rally-although any middle class pension fund has seen nice growth. Older people on pensions have been killed by Fed policy. Because of the long term stuck on 0 policy the Fed has pursued, we have built imbalances in various markets that will correct when they come off zero. Will housing stay buoyant at 2-3% short term rates and 6-8% long term rates? What about stocks?

Stock market volume is way down.  Volume is being concentrated into fewer and fewer hands.  Government regulation and market automation are the cause. We are indeed in uncharted financial times. If you followed Rick’s advice and stayed away from stocks post QE, you didn’t do well. If you jump in today, I don’t think you will see the same gains you did the last three years. But who’s really to know. Best thing you can do is not actively trade and follow an index strategy. Thank you Gene Fama.

tip of the hat to Instapundit,  Thanks for the link.

UPDATE earlier version of this post had a mistake. Didn’t have the PCE trimmed mean chart. My transcription error.