tv Countdown to the Closing Bell FOX Business January 3, 2014 3:00pm-4:01pm EST
cheryl: hello, everyone, i'm cheryl casone, it is the last hour of trading, and stocks are mixed on wall street at this hour, but some car companies roaring ahead thanks to robust 2013 sales even though their december numbers disappointed many analysts. u.s. annual sales of ford just 11% in 2013, that is a six-year high. and it was helped by strong pickup and truck sales. in fact, one in every three vehicles sold in the u.s. was an f series truck. chrysler's annual sales jumping 9%, chrysler sold over 1.8 million cars and trucks back in 2013, just two days ago, and that is a 150,000 increase over the yeaa before. it was led by record global sales of their jeep brand vehicles. there you go. now, december was a down month for general motors, but its recently updated chevy malibu
rose 33%. so for the full year, gm sales earned 7%, but that was less than the overall car market increase of 8%. want to give you a q check of how the car makers are trading right now, separate directions. ford up by nine cents, gm is down more than 3% right now. chrysler trading under the fiat umbrella and is about to become completely owned by fiat. wanted to let you know that coming up we are going to sit down with bob carter, senior vice president of toyota motor sales. finding out about a couple of huge wins for toyota, big news coming out today, and we're going to talk to him about what lies ahead in 2014. well, the automakers had a really good day, so how's the rest of the market looking? traders at the new york stock exchange and the cme group. you know, i want to let our
viewers know, keith, we're going to be hearing this q&a session from ben bernanke. so far he hasn't given us any hints at what 2014 looks like from fed policy. were you expecting to hear something today? >> no, i don't. mr. bernanke's always been a great poker player when it comes to keeping things close to his vest until he gets out in front of the public at one of his press conferences after an fomc meeting. i imagine he's going to set the stage for incoming chairwoman yellen to devise policy for 2014. i don't think he's the type of guy who doesn't want to influence things once he's out of there, so he'll sell off into the academic sunset, so to speak. cheryl: or maybe the very lucrative speaking circuit. i do want to ask you about markets for 2013. we've had a lot of analysts, we're hearing some say we need a correction, we're looking at a 10% correction, it's going to
happen in the first quarter and then others tell you don't fight the tape. what do you think? >> it's very hard, and the second point it's very hard to remove yourself from the equities, especially as we continue with the zero interest rate policy both here in the u.s. and globally. however, we'll start to get some clues here in january and february. if we have an up january and an up february, i think equities are going to be a very good play in 2014. my personal opinion, i think equities will be up in 2014, probably not to the levels we saw last year. that was just a banner year unlike i've ever seen in my career. but i imagine that we're going to have a little bit more volatility this year as the fed starts to exit the market with their policies and the other global banks start to pull back and we see improving economic conditions both here and in the developing world. so i expect some volatility. we may, in fact, see a 10 or 15% correction, but as some of the experts are pointing out, that is healthy for a stock market. it cannot go straight up forever. cheryl: it certainly is, and i
want to move over to dan howe at the cme. we're showing the vixx actually down, but you're saying it's something that's key for you to watch over the next few trading sessions, dan. what do you mean? >> well, it certainly is. i mean, riiht now no one's really expressing any real fear. we're up a little bit from over the holidays, but that's to be expected. going into january, a level of 14 on the vixx certainly with regard to a potential change in the fed policy statements i mean with, obviously, the tapering coming up, 14 is not a high level. people are not expressing much fear when it comes to the buying options right now. cheryl: all right. what else are you looking at right now? it's been one of those trading sessions, really yesterday and today we've had all this level especially in chicago, now the northeast, what's really on your radar? the commodities space, the s&p, what do you like? >> right now i'm concentrating on the ten-year yield because i think it's at a critical point at 3%. if we make any substantial move above 3%, that means, to me, the bond market's probably going to
lead. that could cause a ripple in the equity markets. as the ten-year goes substantially above three, i'm going to take that as a warning sign of getting out. obviously, i'm thinking it's going to trickle up in the course of the year, so i think it's going to go up, but if it goes up in a relatively minor pace, that's going to be fine. if it starts to jerk up 10, 15 basis points, i think that could be a warning sign. cheryl: something else for treasuries so far, just in 2014. gentlemen, thank you very much. >> my pleasure. >> thank you. cheryl: weight loss product companies are actually seeing red today. usually it's the other way around, but there was a big federal trade announcement. let's bring in nicole petallides who is back from her own holiday. nicole? >> reporter: thank you and happy new year to everybody. we are taking a look at herbalife and a couple of others when you talk about an initiative that now is moving forward from the ftc as they're looking at weight loss products. and perhaps descent i market --
descent i have marketing. and just the talk of it, it doesn't mean these companies are doing exactly that. but just the talk of the fact that the ftc is now moving forward, they're going to have an announcement next week. and doing a new initiative against deceptive claims made by national marketers of fad weight loss products. and this will now be, move into next tuesday. that's when this initiative will occur and we'll find out some more then. that's when the press conference is. and the press conference may give us a glimpse into some problems or maybe everything is perfect. in the meantime, herbalife has been to the downside. we're also watching new skin and some of the other names, sometimes you think of it as personal care, but they also have nutritional supplements in their umbrella as well. so we are seeing them coming under pressure with this one. but i looked at weight watchers. slightly different, but that one's doing great today. cheryl: and we should say new skin had a great 2013 even though the stock's been down
today, it's been a high flier. i don't know, nicole, can you eat six doughnuts and lose weight? that's what i was told. >> reporter: i think, yeah. cheryl: nicole, thank you. see you in a bit. closing bell's going to ring in 54 minutes. federal reserve chairman ben bernanke getting set to take questions in what could be his final speech as fed chairman. we are going to bring you that live when it begins. right now he's doing his prepared remarks. and from smart bands to google glasses, the samsung watch. 2013 was the year that wearable technology went mainstream. so what's in the pipeline for this year? don't want to miss it. ♪ ♪ she keeps you on your toes.
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cheryl: okay. the first major snowstorm of the year blasted through the northeast last night with some areas getting as much as a foot and a half of snow. let's head to janice dean, the weather machine. she's standing by in the fox weather center. janice? >> reporter: yes, cheryl, we have another storm we are watching, if you can believe it. some areas actually north of boston got two feet of snow. that was where the jackpot is. and we're still seeing blustery
conditions, so people are still urged to stay indoors, especially because of the cold temperatures. if you can believe it, more cold air, colder than we have seen thus far. can you belief that? wind chill as we go further out in time for the upper midwest, this is where our next arctic plunge is going to come in this weekend, so here are the wind chills, -30 in international falls, this is 1 p.m. on saturday, -27 in fargo, it's all going to move south and eastward. look at green bay, we have a big game on sunday. this could be one of the coldest nfl games they have played where it's going to be, oh, 2 degrees. but at game time, around -5. that is the air temperature. chicago as well. you could set some records with your daytime high on monday of -10. that's not the wind chill, that's the actual air temperature. so here's our next storm system across the great lake, the ohio river valley, and it's going to be cold enough for snow as far south as the mississippi river
valley. incredible amounts of snow we could get out of this one. oddly enough, we're going to kind of see a swing into warmer temperatures along the east coast, so mainly a rain event, but very short lived because the cold air is going to plunge south and eastward heading into next week. so there's some of your snow totals, 6-12 inches where you see the blue shaded areas, mainly a rain event here for the east coast but again, cheryl, as i mentioned, we're going to see those cold temperatures heading into next week moving into the northeast. blizzard warnings for the northern plains, winter weather advisories ahead of the storm system, and we've got a lot of winter to go yet. i think 75 days left until spring. cheryl: oh, wonderful. janice, really quick, i hear you're a big green bay fan, right? >> i do like the packers. cheryl: okay. so are you more concerned about football or the weather? >> i've got to say, it's old-fashionedded financial. i mean, to see -- football. to see the guys playing in really cold temperatures, that's
kind of fun. cheryl: for us! [laughter] >> it won't be the coldest game, i believe that was 1967, and the air temperature is -13 in green bay, and they won. cheryl: okay. i knew it, i knew you were going to come up with a smart stat like that. thank you, janice. >> reporter: nice to see you. cheryl: despite all the hype around is samsung smart watch and google glass, the consumer has fully to embrace wearable technology. joining me now, i've got brian sozi and pete, marble senior technology editor who's kind enough to put on the bag google glasses. >> my pleasure. cheryl: do you like them? are they kicking with consumers? >> i wear it fairly regularly. it's hard to explain exactly what it does for you because it's not just the camera which a lot of people make a wig deal about, it's really the display as well and the network connectivity. so it's basically the internet
on your face finish. [laughter] which sounds a little weird and scary, but at the same time, you know, if you try it and you sort of have that experience of either sort of getting directions fed to you right here or just googling stuff and getting alerts, you suddenly realize -- cheryl: duds it take a while to get used to them? >> it does. it takes a while to get the hang of using both your voice and this interface, because you have to tap as well and slide your finger to use it. but once you do use it for a while, it's kind of like, okay, i get it, you know? you're kind of in the zone. and, you know, when i sit down for long periods or, i mean, i usually just take it off. cheryl: okay. brian, what do you think? is this one of your top trends for 2014? >> absolutely. us techies, we know about this stuff. you poll your mom and dad on the street, they have no clue, think it's something you buy in best buy. but i think that shows that the technology companies haven't made it an intimate device, a device you don't have to think about.
you still have to think about it, it's another item you have to charge, but next year this is going to rain down on many retailers, and you definitely benefit from it. cheryl: you're bullish. >> i'm bullish, but i want to caution investors. not everybody is going to go out and buy wearable technology on day one. i think once they hit about $300, yes. cheryl: pete, if you want to put your regular glasses on -- [laughter] but the watch as well. i mean, that's the other thing you're wearing. i want to show our viewers, if you could just raise up your wrist -- >> no problem at all. it's the samsung galaxy gear. it's a smart watch. it's a very -- i mean, it's a more accessible piece of technology. consumers can really wrap their heads around a watch, you know, it's not a weird thing on your head. the thing is with smart watches and this product in particular, i don't know if it's done the killer app. there's not a thing it does that people point at and think, oh, wow, i need that. cheryl: does it burn calories? does it cook for me? [laughter] no, i'm serious. people are demanding of their
device. >> it's going to give you alerts from your smartphone so you don't have to see who's calling, you can look here, either take the call on the watch or dismiss it. you can get other alerts like e-mail, texting, that kind of stuff. and there's a lot of fitness interaction. cheryl: what do you say? >> i think it shows there hasn't been that one breakthrough type of product. next week we have the ces, but i think ultimately apple needs to come out with that game-changing product that everybody understands and is accessible at 3, $400 a pop. cheryl: maybe this is just me, but fashion. you know, i don't think i'm going to walk around with google glasses on my head. i want something that's a little more attractive. i mean, momentum that come into play in all -- doesn't that come into play in all of this? >> definitely. it's huge in wearables. smart glasses or displays, whatever you want to call them, that's a really big factor because it's hard to design a piece of technology that's unobtrusive. a watch makes more sense, and once you get down to those single function fitness trackers, like the nike fuel
bands, because it's much easier to design a stylish piece of technology that does one thing. cheryl: brian? >> i think you'll see tech companies partner with louis vuitton, celebrities to get out there and say -- cheryl: to make them pretty. >> these are amazingly awesome, but those fuel bands have sold over two million year to date, and now we're starting to see shops. i foond one in new york, stops starting to get intimate be, interesting, gets the consumer excited. cheryl: i got one more christmas. my favorite gift, actually. liz claman's going to be at ces next week, what are you expecting? one blockbuster thing -- >> wearables, definitely. they''e going to explode. you're going to see companies big and small come out with wearables. i don't think there's going to be any big slash shi ones because they'll debut at their own events, or k-tv is going to get -- 4k-tv, and i think just more personalized gadgets that sort of use your personal data
like fitness trackers, that's going to spread to your car, your appliances, all that stuff. >> i'm looking for, one, qualcomm. qualcomm quietly led with a watch that launched this year, also they're going to be playing in the chip sector, but also i wallet to see who's competing with google. massive expectations on google glass -- cheryl: that was nice to be on top to knock you off at the same time, and that's where they're sitting right now. liz is going to be out there next week, so we're looking forward to ces. guys, thank you very much. you can put your regular glasses back on. appreciate you wearing the glasses for me, thank you. well, we have a lot coming up including a bell that's about to ring in 41 minutes. and just moments from now ben bernanke could make his last major public comments as fed chairman. we're going to go live to philadelphia as soon as he begins his q&a session, see what he has to say. and the latest auto sales numbers are coming in, and toyota was among the automakers
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♪ ♪ cheryl: pour power mover of the pour is fire eye -- of the hour is fire eye, hitting an all-time high today. right now it's at 56.25, that's a gain of more than $15, more than a third of the stock's value. it is really jumping today. this is following the company's announcement it has acquired a rival corporate security firm. wall street analysts applauding the latest move, goldman sachs raising its price target to $45 from $40 a share. we're past that now, guys. the company's shares have more than doubled since they debuted in the month of september. this is definitely a stock you should keep an eye on definitely throughout the year. auto sales for the month of december coming in low or than expected, but 2013 still ended on a positive note. so what does 2014 have in store
for the top automakers? we're focusing on toyota today. the company missed december forecasts, but the annual sales numbers up 7.4%. our next guest has the rundown on the auto giant for the coming year. joining us now is bob carter, senior vice president. bob, it's great to see you again. >> well, good afternoon. thank you. cheryl: yeah, happy new year. congratulations. certainly, 2013 was a strong year coming in at 15.6 million vehicles, big increase. how did you feel about 2013 as a whole? did it meet your expectations? >> it did. we had a wonderful year. the overall industry was up 1.1 million, that was about 7, 7.5%. that was more than we expected this time last year. and then toyota had a fantastic year. our cars, our trucks, our new models all sold very well. so we're very pleased with the way 2013 ended up, but we're even more optimistic as we look into 2014. cheryl: analysts are expecting, let's go to the numbers for 2014, the analysts always have to come in and up their
estimates. 16 to 16.5 million, but there's a little bit of concern from some in the community, analyst community, about competition. can you respond to that? this really could be a very tough year especially with the fiat/chrysler news that we got this week. >> well, competition is good for the overall customer. so we actually look forward to it. the industry in 2013's going to settle in tonight when everybody reports at about 15.6 million, and everybody's consensus is it'll be over 16 million next year. there's a lot of new products coming to market. what's driving the business today isn't so much the pent-up demand, but it's strong economic numbers. we're seeing improvement in the housing market, housing sector which is pushing truck sales. interest rates are low, and consumer confidence rebounded in december back to january levels. so we're seeing actual economic factors versus just the age of the inventory that's on the road that's driving our business
today. cheryl: i was talking with two guests a few moments ago, we were talking about ces next week. but ces has become a major player in the automotive world, and you're going to be debuting a new concept car next week. so what can we expect? we're looking at it right now. this is the fuel cell vehicle. tell us about it. >> yeah. i'm actually looking forward to ces this year. i'll be there tomorrow. but we're going to be doing our north american debut of our fuel cell vehicle that we'll be bringing into market in 2015 or perhaps even a little sooner. but essentially, what the fuel cell is, it's a full electric vehicle that takes the power generation and puts it onboard. you put in about five kilograms of hydrogen, and it's zero emission. the only emission that comes out the tailpipe is a little bit of water say to have por. it's -- vapor. it's a terrific new technology, one that i think is going to change the auto industry over the next 10 to 20 years. cheryl: i was loooing at the
camry, you know, 2013 again, best selling car of the year, 12 years in a row for the camry. we've learned hybrids also selling all-time sales records. do you think they're going to be where the true volume of sales is going to come from this year? is that where you're putting your hopes? >> yeah, we're seeing hybrid grow every year. we finished up last year at 345,000 hybrid sales, that's roughly 68-70% of the alternative fuel vehicles that are in the u.s. it's our core technology. but what we're seeing is that hybrids initially ten years ago was very dependent on the costs of fuel. now, the good news is this year fuel prices have moderated and actually come down to five-year lows, yet hybrid sales are still very strong for us. so hybrid power trains are now across the mainstream industry, and it's something that we're
going to continue to develop and bring to market. cheryl: you know, retail sales, i mean, obviously, that's what the analysts are going to judge you on and what your competitors are going to judge you on. what about the issue of ford and general motors now because, certainly, they really are stepping up their game not just in the united states, but also globally. do you think toyota can make more of a global footprint, not just here in the u.s.? >> yeah. we have a very strong global foot print. emerging markets are very important for us. here in north america, some of our highest growth is coming out of markets such as south of the border down in mexico. but the u.s. is really the core of our north american sales, and you mentioned retail sales. that's where we focus. we were very pleased that when the numbers came out this morning, toyota again was the number one brand in the united states and throughout north america. being number one with retail consumers. cheryl: lexus also has done very well. >> yeah. lexus had a fantastic year.
it was over 273,000 units, up 12%. and we're seeing the luxury end of the market. that luxury consumer, actually, the growth rates in luxury are even healthier than we're seeing in the general industry. so it's a very good market for lexus, and then when you consider the numerous new product launches we have coming in both 2014, 2015 for toyota and lexus, we're really optimistic of the next two years ahead. earl. cheryl: before i let you go, one of the things that's changed so much about cars is they really are becoming their own computers. at what point, though, are you concerned about safety and all of the, quote-unquote, gadgets we have in our car this is do you ever worry people aren't focusing on the road anymore? >> yeah. everything we design -- first of all, our first priority is safety. there's nothing more important to us than that fact. but as we design new
entertainment centers, new cell phone technologies, we keep an eye on safety because we don't want to add any driver distraction. and while the government, the standards are being developed to have industry standards, we are working with legislators and regulators to make sure that we lead that development. because there is that potential of too much information and taking yoor hands off the road or your eyes off the road. so everything we want to focus is the safety of that driver. cheryl: again, bob, congratulations on 2013. it really was a great year for toyota and, by the way, jeff flock says hello and sends his best. >> thank you very much. [laughter] cheryl: thank you. bob carter, toyota motor sales senior vice president. closing bell going to ring, 29 minutes away. we're actually waiting, at any moment we're going to start to get some comments from federal reserve chairman ben bernanke. this could be his last speech before he hands over the reins to janet yellen, so anything he says could move the market.
so far we haven't gotten anything impactful from the him, but in the q&a you just never know. some of the senatorrest economists -- smartest economists in the world are in philadelphia with the federal reserve chairman. we'll be right back, stay with us. ♪ ♪ [ me announcer ] this is the story of the dusty basement at 06 35th street the old dining table at 25th and hoffman. ...and the little room above the strip ma f roble avenue. ♪ this magic momt it is the story of wherevery great idea begins. and of those o believed they hathe power to do more. dell is honored to be part of some of the world'great stories. that began much the same w ours did.
cheryl: here we are on the second full trading day of 2014, and the dow is higher by 71 points. yesterday, pretty rough day for the markets. we are seeing volume pick up. two people that know exactly what i mean, nicole petallides on the floor of the new york stock exchange, also got sandra smith in the pits of the cme. actually, sandra, i want to go to you first to talk about volatility. that seems to be what is on the minds of the guys down on the floor of the cme. what are they telling you? jr. so just to give you an idea
where volatility is today, cheryl, the vixx is what we use to measure volatility, it's basically looking at stock options in the s&p 500. we're looking at the vixx down nearly a full point today, and it's below 14. it's at 13.5. for the entire year of 2013, it averaged about 14, so e're below the average of volatility that we saw all of last year alone. so still showing a lot of complacency in the market, cheryl, something to keep in mind when we see volatility or we see complacency in the market, sometimes it can indicate a turn around from what has been the overall trend which is, obviously, where the stock market's been higher. something that's certainly on the radar of a lot of traders as we see commodity prices moving to the downside today. energy prices down pretty much across the board. we got that delayed government report on oil and distillates, inventories in the latest week, all of which showed basically a bigger-than-expected drawdown. and so we got a big reaction in the markets.
crude oil prices falling by more than a dollar to $94.25 a barrel. so we definitely had some movers at the cme, cheryl, and volatility was certainly one of them, even though it trades right across the street at the cboe. cheryl: and, you know, nicole, sandra was talking about oil prices and actually the fact we've seen prices pulling back the last few sessions. that's been great, nicole, for the airline stocks that have been performing really well so far this year. >> reporter: ultimately, and mart of that, also, is not only because of lower oil prices but also just some great numbers out of some of these airlines which show the capacity and load and the revenue on the rise for the latest month, especially since you had the thanksgiving holiday which helped them along. the big picture, though, as i see these airlines with significant gains today, jetblue up over 5.5%, us airways up 5.5% as well. but the big picture is we're coming off a great year on wall street, and that often is followed by a good year.
however, this is an election year as well. so you have midterm elections. that may be the wildcard later in the year, but in the meantime, you have many people on wall street who still feel that the trend remains to the upside. the one other wildcard is the fact of the correction. now, a correction usually would come much more frequently than what we've seen, right? we haven't seen one for over two years really, and so a lot of people are waiting for some big correction. in the meantime, we're sitting here at 16,500. so while the trend still seems to the upside, the wildcard is also like when is that big pullback that everybody else has been waiting for? cheryl: sandra, she brings up a great point, several analysts have told us they're looking for a correction, a healthy correction, 10%, 12%, sandra. but that's got to be an economic event. i want to let our viewers know we're waiting on comments from ben bernanke, this could be his final comments before he hands the reigns over -- reins over to janet yellen, and the fed could
really be the driver. in particular if they get negative numbers with gdp, if they see something in the jobs numbers they don't like, sandra, that's where all of us could be facing a correction, not just the stock market, but the bond market as well. >> reporter: well, you used a very important word there when you described the correction, and that would be a healthy correction. so you've got basically wall street analysts across the board that are pretty much bullish as we start 2014. that's certainly starting to show up as far as investors buying the stock market today. they to mention a lot of reasons or a lot of potential pitfalls for the sell off, and that is what will the fed do next, uncertainty on obamacare, on taxes. but something that sticks with me is something sam stoveall said, great years are often followed by good years, and so a lot of these wall street analysts aren't just pitting their hopes of another bullish year based on raw market fundamentals, they're looking back at history, and history does show typically when we do
get such an up year, we tend -- for the most part -- we tend to get a positive year the next year. so a lot of these hopes on a continued market rally this year are basically just using history as a reference. that's something a lot of traders will definitely put their money on. cheryl: sandra smith at the cme, nicole, thank you very much. david asman, going to be here at 4 p.m. eastern time, we're getting breaking news in to fox business, our partners at "the wall street journal" are reporting that the winklevoss twins, you remember the twins, famous, of course, for their tanglement with mark zuckerberg and facebook years ago, cameron and tyler, they're actually going to be backing a new hedge fund. now, the winklevoss twins also had been heavily involved in pushing bitcoin, another side of the story that david asman and i have talked about. but they're going to be backing briarwood chase management, this is the first time they've ever made a hedge fund investment. anyway, this is something they're getting getting into no. briarwood focuses on microcaps.
there they are, the 32-brothersr their entanglements with facebook and mark zuckerberg when they were in college. but thai all grown up now -- they're all grown up now. 9 minutes to go, coal stocks were not very hot in 2013, but with many of the big names falling more than 24%, it's been a sector that you really want to keep your eye on, and the sector could begin and to heat up this year. all of that thanks to who else, rich edson is standing by in washington with more on this one. >> reporter: looking ahead to the 2014 midterm elections, cheryl, and republicans are trying to blame the administration for the decline in coal and tie their democratic senate challenges to president obama. coal stocks have fallen 13% since the president was reelected. the energy sector, meanwhile, is up 18%. analysts credit the natural gas boom for much of that shift, though they say forthcoming eps
regulations may get much more expensive. renewables, over that time, up 55%. republicans need to pick up six seats to win control of the u.s. senate. there are several states president obama lost in 2012 with democratic senators up for re-election this year. a handful, like west virginia, arkansas and montana, are coal states. >> i think coal is going to be a major issue in the campaign, an issue that republicans will use to try to tie these democratic senators or democratic candidates to president obama. it's important to remember that republicans only need to win republican-leaning states in order to get to the majority, and i think they're going to use coal as an issue to tie these democrats to the president in order to try to win. >> reporter: many democrats in coal states are distancing themselves from the president on energy issues. one republican campaign aide says these democrats are simply playing for the wrong team, and they're giving democrats control of the senate.
republicans also have to hold their own seats, especially senate minority leader mitch mcconnell in kentucky, another coal state. back to you. cheryl: rich edson high out of washington -- live out of washington, thank you very much. want to let all of you know at any moment we expect to get some live comments from the current federal reserve chief, that's ben bernanke. this could be his last public comments before he hands over the reins to janet yellen. and he's speaking at the american economic association. as soon as the q&a begins, we're going to take you there live, listen this to what he has to say. see if he gives any clues to what he and janet yellen have been talking about behind closed doors. be right back. ♪ ♪ welcome back. how is everything? there's nothing like being your own boss! and my customers are really liking yo flat rate shipping. fedex one rate. really makes my life easier. maybe a promotion is in order.
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cheryl: want to show you how the markete doing on this second trading day of 2014 on this friday, obviously. twelve minutes until the bell rings, and stocks actually were able to reverse earlier losses following fed chairman ben bernanke's speech in philadelphia. i want to show you these numbers -- actually, let's go live to federal reserve chairman ben bernanke right now. >> equity mutual fund investors took negative returns almost every other day, and, in fact, they lost about 50% between the crisis in early 2009. so if investment should all be profits and no losses as in the case of the money market mutual funds, shouldn't the fed have acted equally aggressively to buy up stocks? or was it a big mistake to support the money market mutual funds? the first thing could be in the chapter about wacky ideas. >> i'll point out i have two very distinguished colleagues who also are happy, i'm sure, to
take any questions that might come up -- [laughter] particularly about production values. [laughter] the actions to, which, by the way, were led by the treasury department to protect the money market funds were not about protecting the investment of any particular individual or group. it was about avoiding precisely this issue of -- one of the key ideas in a financial crisis is what's called a fire sale ecker thalty, the idea that when large numbers of people are forced to sell assets at a given moment, it'll drive down prices the sustainable price level because there's not enough liquidity, not enough buyers in the short run, and that in turn will feed back, reduce the net wealth of other asset holders who in turn will be forced to sell and you get into a vicious cycle. the money market funds that were in a run were pulling cash out of, first, the repo market which finances a lot of assets held by
broker-dealers and others and also the commercial paper market which funds both financial and nonfinancial firms in the short term. so it wasn't at all an issue of protecting the wealth of any given group in the same sense that intervening with various companies was not an attempt to protect the wealth of any given group. it was, rather, an attempt to try to avoid a cascade of falling asset values and fire sales which the run on the money market funds was already creating. >> but the equity funds had to sell assets too. in fact, indeed, it cascaded 50%. >> but they weren't run bl, that's the point. >> neither are money market mutual funds as long as they act like -- >> [inaudible] >> you get 2% more -- >> okay, next question. >> my question is the mechanism do you think -- >> i can't hear you. is that on? >> [inaudible]
>> try anyway. >> okay. my question is the mechanism by which quantitative easing is seen to work. your original statements back in what is called qe1 suggested that what you were doing was targeting higher inflation and that, or avoiding deflation. and the impression that that generated was that higher inflation would generate a lower funds rate and generate more stimulus. but your more recent statements suggest that quantitative asing works through reducing interest rates, buying securities which reduce interest rates. which is the more immortant mechanism that you are attempting to use here? is it rising inflation or lowering interest rates? >> no. i think you're mixing together goals and mechanisms. the goal was to avoid deflation. so one of our concerns besides the weak recovery at this time
of qe2 was that inflation as today but even more so was very soft and moving down, and we were concerned about deflation risks. and, of course, deflation is not a zero-one thing. even low inflation can create problems. so we adopted the quantitative easing policy with the objective of raising the inflation rate to meet our target. and at the same time, by doing so we, of course, we would lower real interest rates and help the real economy. so that was the objective. the mechanism and, of course, there's a lot of debate about exactly how this works and so on, but the mechanism that we have focused on is based on sort of a tobin friedman type of world in which buying up assets has an effect on the yields of those assets. that was the mechanism which i discussed today in which we
were -- which i talked about in jackson hole right before qe2 as well. so that's the basic mechanism that we have argued. >> thank you. christian -- [inaudible] world bank group. i just wanted to ask whether you could share with us a little bit more on sort of how you balance transparency and accountability with central bank independence and what challenges other central bankers might face in trying to follow your example. >> why is it a question of balancing? so, well, okay. let me, let me try a specific example. finish i think i understand where you're coming from here. so the very specific example, and i have a long footnote in my speech which if you'd like to take a look at it, itts on the february web site which talks about the so-called awed fit the fed legislation. audit the fed legislation.
that legislation is misnamed. it's not about auditing in any common sense at all, and as i tried to emphasize in my spoken remarks, the fed is toroly audited -- thoroughly autodidded. all of its transactions are thoroughly audited. as i said, we've always had a very good record there. moreover, the gao, the government accountability office, which is a arm of the congress haa access to virtually everything that the fed does and comment, criticize, report, etc. the one exception, and here's, i think, what you're talking about, the one exception is that there is an exemption in the law for gao auditing individual monetary policy decisions. so the gao under current law is not allowed to rom in the and say give me the records of your last fomc meeting, we want to
have an independent review of whether you should have raised or lowered interest rates at the last meeting. so that exemption in the gao law which was put in in the '70s by the congress, we view that as an appropriate balance on the one hand the fed is very transparent, very open. gao has broad access to all of our activities, and, of course, monetary policy's very transparent. we have minutes, the transcripts come out five years later, etc., etc. but the congress took the view in the '70s that exempting monetary policy decisions was needed in order to prevent congress from using gao audits as a tool for influencing short-term decisions made by the fed. so there's a balance there as you point out between independents and transparency. what the so-called audit the fed legislation in various forms would do is it would remove
that, basically. after fomc meeting and second guess guess the fomc's decision which would be pretty inconsistent with any common view of central bank independence. so i think that's, the balance where it is now is appropriate. i think i would resist giving congress day after authority to second-guess our policy decisions. i think it would be bad for the economy if the public and market makers, market participants thought that essentially whatever the fed did was subject to immediate reversal, or substantial pressure by the congress. >> question from a student. >> okay. >> so i asked my students if they had a question for the chairman. and there were a number of them. one, which i won't ask is what about bitcoin.
[laughter] which i know he knows about. but i thought a really interesting one was this. if you knew in 2006 what you know now, what step or steps would you have taken then to prevent or ameliorate the financial crisis and subsequent severe downturn? >> well, that's a really unfair question. i mean the reality is everybody, every policymaker has to make, this is the nature of policy. it has to be made in very, very foggy conditions with very imperfect information. a lot of uncertainty. so, i would, if ordered to do anything i think i would not only have to know everything in advance, everybody would know have knew everything in advance. in other words, if i went out and saying all of sudden i'm arbitrarily raising capital
requirements five percentage points the banks would say what? and would be very difficult for congress and regulators to agree. i think the crisis was very complex, involved many, many issues. one of the concerns, you know, i want to respond a little bit indirectly because of a point that o'neill raised which is the usefulness of macro prudential type measures. one of the practical questions, even if you think you have got macro potential measures at work can you put them in place quickly enough, responsively enough, preemptively enough and i think that is one of the things -- the bank of england is working to try to find mechanisms for more rapid response so to speak and i think that is one of the real challenges. for example, before the crisis the fed put in new guidance on commercial real estate for banks which meant, which strengthened the criteria for risk management
and said that you shouldn't have too much cre on your balance sheet, et cetera, et cetera. that process went through, took more than two years of negotiations and discussions and sending it out to banks and banks have time to implement. in order to make this work, the macro prudential things work we'll have to have a more nimble system. that is a big part of this. so the answer to the question bill raised is that, i'm sure there were some things that could have been done but unless everyone collectively knew what was going to happen and was willing to work together cooperatively to take the necessary steps it is not obvious that you could have avoided it. maybe one more question. >> larry sideman, university of delaware. you rightly expressed concern about the premature phaseout of fiscal stimulus at the end of 2010. do you think in future recession it might be