For those of our readers who do not know who Rick Santelli is, we highly recommend that you spend a few minutes on YouTube and search his name. Santelli began his career as a commodity trader on the Chicago Mercantile Exchange, and currently serves as an editor for CNBC and reports live from the Chicago Board of Trade. If you think that you have ever seen a financial professional get heated before, think again.
Loud, boisterous and incredibly intelligent, Rick Santelli has gained popularity for his on air rants. He railed against the banking sector and subprime mortgages, as well as the low interest rate environment that ushered in the credit crisis. He has also been credited with sparking the Tea Party Movement, when he said on CNBC in 2009 that, “We are thinking of having a Chicago Tea Party in July, all of you Capitalists who want to show up to Lake Michigan, I’m going to start organizing.” When asked what he was dumping in the water, he suggested derivative securities, which played a big part in the Credit Crisis of 2008.
Santelli hit the nail right on the head with his commentary following 2008; he was able to identify the problem and show the issues with the proposed solutions. Since then he has been an outspoken critic of Too Big to Fail policies (having once said that “The only regulation that works in my mind is failure.”), stimulus programs and the Federal Reserve attempting to engineer the economy, rather than act like the bankers that they are. Fast forward 5 years, and he has yet another epic rant that has gone viral.
On July 14 Santelli engaged in a heated debate about the Federal Reserve’s monetary policy, specifically artificially low interest rates and Quantitative Easing. Santelli remarked that the markets are overvalued due to low interest rates which have resulted in cheap money and allowed for stock buyback programs which have caused a spike in equity prices. Steve Liesman, a CNBC economics reporter, attempted to discredit Santelli’s remarks by saying that he was wrong about increasing inflation following QE and that he was wrong about the US Dollar losing value due to said inflation. Santelli quickly responded that, “I wasn’t wrong on inflation. I didn’t know policy would be so bad that we’d get no velocity after five-a-half years.” By Velocity, Santelli is referring to the rate in which money is circulated for the purchases of goods and services in an economy. It is important to note that just because currency has been printed, that does not automatically result in inflation. That currency must be introduced into the economy and transacted for goods and services (velocity), which will then result in price increases.
While many viewers will discredit Santelli’s remarks as those of a loudmouth who is looking for ratings, we view his comments differently. Santelli is an intelligent man screaming for sanity in a chaotic environment. He was able to accurately predict that the post-crisis Fed policies would not work, and his counterparts are only able to respond by saying that the Dow Jones and S&P hitting new peaks disprove his theories, an argument used by many analysts in 2007.
The United States is not out of the woods yet, and if the Federal Reserve raises rates in October as they have hinted at, our economy could face volatile times ahead in equities, bonds, real estate and precious metals. Using the last 5 years as evidence, it can be concluded that if Rick Santelli is on TV screaming about something, listen to what he has to say, as it is likely more valuable than you can imagine.