Economist Stephanie Pomboy, founder of MacroMavens, does public appearances sparingly. She jokes that it’s because no one wants to hang out with perma bears like her.
Today, though, she’s giving a rare talk at The Big Picture Conference, a meeting of investors and finance folk in NYC.
The talk is called ‘You Can’t Handle The Taper’, and Pomboy’s thesis is this:
The U.S. economy and the consumers in it are in no way ready for the end of QE.
“The idea that the economy can withstand the taper seems unrealistic since we’re as levered as we’ve ever been,” she said.
Sure, we feel richer thanks to the Federal Reserve’s bond buying program, and the U.S. consumer is delveraging nicely, but that same consumer is indirectly benefiting from the leverage in other sectors of the economy.
Here’s some of how Pomboy broke it down (though she could keep going).
On the top of the economic pile, higher income consumers are rolling in “shareholder goodies funded in capital markets by corporations,” said Pomboy.
On the corporate side, reduced interest expense has seriously juiced profits while corporations have cheap access to capital as well.
Despite the cash, though, corporations aren’t investing in the economy because they’re simply not strong enough. If they were, they would.
It gets worse. Homeowners, says Pomboy, have benefitted enormously from the buying of distressed properties by institutional investors and private equity funds.
QE also lured individuals into the market and allowed them to refinance.
Meanwhile, she argues, we’ve already started seeing the PE firms heading for the exits of the real estate market.
“[QE] has succeeded in lifting asset prices but the feedback loop to the real economy” isn’t creating jobs yet. The wealth effect isn’t lowering unemployment.
And that’s what Pomboy really thinks we need — income growth.
“Like a roadrunner off a cliff, this consumer will drop,” she said. Adding, “I’d love to make some money but at this point I think the challenge is just to preserve capital.”
So what’s holding us back? Over and over again Pomboy said that fiscal policy was acting against the Fed, which is doing everything it can and in its power to keep things going.