Journalist: It is not true that the stock of Berkshire Hathaway (Warren Buffet’s company) has fallen 99%, what fell is the operating system. Yes, it is true, as incredible as it may seem, that speculation about GameStop is resuming and the stock is flying 21%. An overly excited economy forced the FED to postpone the promised rate cut. Now that the data surprises and suddenly cools down, doesn’t Wall Street like it either? Why do you retreat otherwise? Why such a cold reception?
Gordon Gekko: The Berkshire thing (and 30 other papers) was an unusual technical failure, which was detected and corrected relatively quickly, but from which it is known that we will never be completely immunized.
Q: The possibility of a flash crash always lurks around the corner.
GG: In this case it was very limited and did not cause serious problems. Nobody thought about a crash at any time. Not even the robots. There was no anxiety.
Q: Since May 29, the speed of settlement of transactions has been reduced by half. Do we blame the migration towards a more agile regime?
GG: No. The specific reason will be known. Apparently, it was the use of new software.
Q: A more agile system, but also more unstable?
GG: No. The new regime significantly reduces operating risks.
Q: The economy came to a sudden stop. The Atlanta FED’s real-time forecast, which in mid-May predicted growth of 4.2% for the second quarter, was reduced to 2.7% at the end of the month. And this Monday at only 1.8%. What the hell happened? It cannot be alleged here that someone pressed a key wrong.
GG: No. These calculations are done without any rush. Don’t forget either that we are at full employment. And 1.8% is the non-inflationary potential growth rate (that is, compatible with an inflation target of 2%) that the FED has in mind. It wouldn’t be a drama. It is not a recession.
Q: From now on. But the speed of the transition is astonishing. And, given the inertial thrust, who can guarantee that it stops at this point and does not continue on its way to a more serious stop. At this rate, in a few more days.
GG: A real-time forecast is much more volatile than a traditional one. It is designed for that, to fully reflect the impact of changes in the margin, indicator after indicator.
Q: Ok. And what it tells us is that the economic indicators are falling one after another like bats in bowling.
GG: They vary more than what the model presumed. That is why the new data hits so hard in the revision of the numbers. Evenly down.
Q.: The forecast anticipated a robust background and pushing upwards. Did we get the moderation that Powell and his people expected when they pivoted to lower rates?
GG: The date that cools is from March and April. It’s over, even though the readings are published now. The anticipated trade balance numbers, referring to April, had a great impact. The deficit expanded more than expected. And it detracts from the gross product. But what does it tell us about activity and spending? Exports grew, but imports grew more: 0.5% versus 3.1%. Where is the cooling? Automobile imports rose 10%. The GDP forecast must be pruned, but not the final demand forecast. And the final sales are what pull the car.
Q: You were thinking about a rebound in activity in May. The ISM report, released this Tuesday, surprised with a drop. That’s fresh and relevant data.
GG: Correct. And he contributed to cutting the Atlanta FED forecast. However, a similar survey, the PMI, confirms a very solid expansion in the manufacturing industry.
P.: That is, exactly the opposite.
GG: As it is.
Q: And what is the correct vision?
GG: In time they will both say the same thing. But keep in mind, the Atlanta FED is fed by the ISM and does not incorporate the PMI. And, point two, manufacturing activity does not play a relevant role in the expansion. Not so far. If the ISM is right, it will not be a new drama either, but rather the continuity of what has been happening. It is not a sign of weakness where strength once existed.
Q: The data covered us up. It is not very clear to me whether the economy is advancing or regressing.
GG: It moves forward, but at what speed is debatable. The pause at the end of March and April is not discussed. It’s proven. The unknown is the rebound in May. Is it a mirage or not? Too early to pronounce. That is the ISM’s warning against the grain. For now, the fact that long rates are loosening gives him credit. The employment report will guide us better.
Q: Is this good or bad? How will the FED and the markets take it?
GG: Watch and wait is the FED’s mantra. And volatile data proves him right. Wall Street should have no complaints. And basically it won’t have it. But when you climb the branches of the tree I would prefer that they not shake. Even if favorable winds blow.
Source: Ambito
