9 replies to this topic

[DonBart]

courtesy of A Dash of Insight blog (I immediately thought of all the Fed bashers here when I read this)... "Your Favorite Pundit versus the Fed Here are a number of relevant facts to help investors in finding the real experts: Your favorite pundit is not smarter than Ben Bernanke. He was a Professor at Princeton and he had front-line policy experience in government. None of the people that you are listening to could have gotten either one of these jobs. They write blogs or run hedge funds. They are good at parsing anecdotal information and making trading decisions. They are not experts at economic policy. If they claim to be good because they have not studied economics, that is a red flag. Your pundit does not have the colleagues of Ben Bernanke. Bernanke gets the advice of a group of Fed Governors who have similar credentials to his own. The pundit consults fellow bloggers and other pundits. Your guru does not have the staff of Ben Bernanke. Bernanke has about 350 economists at various Fed installations. They are all extremely intelligent, committed to what they do, and spend all of their time on specialized issues. No pundit comes close. Your pundit does not have access to advanced econometric models. Ben Bernanke does. That is why the pundits see everything in black and white and construct "rigorous analysis" that consists of long chains of binary effects. Real economists think in terms of supply and demand curves and look for marginal effects. Your pundit introduces all sorts of extraneous arguments with fancy names. He imputes motives to the Fed related to asset pricing, creating and pricking bubbles, moral hazard, the Greenspan or Bernanke put, and other considerations. The Fed, according to all reported accounts, does not attend to these issues. Their mission is to balance inflation expectations (not backward-looking data) and economic growth. If you had a visit from an appliance repairman, or took your car into a mechanic, you would probably listen to the advice. Economic policy is much more challenging. Think about it. Where is your edge in listening to those without the strongest credentials? Disrespect for the Fed We are amazed -- almost daily -- by the barrage of Fed commentary by those with little expertise. Apparently it makes the pundit seem sophisticated to talk about "Greenie" or "Uncle Ben" or "Helicopter Ben" or such. Meanwhile, those who actually read and study the Fed have an advantage. It is not difficult. Pay attention to former Fed Governors like Wayne Angell, Laurence Meyer, (frequently cited here), and Robert McTeer. Tune out the others. Pay attention to public speeches, which provide background and reasoning, but not actual policy. The Fed deliberations and communications are much more transparent than in the past. This is not a Hollywood conspiracy with secret, unstated motives. Former Fed members write memoirs, write blogs, give speeches, and appear frequently on CNBC. Those of us who watch these sources for clues may seem naive to the pseudo-sophisticates who think they are smarter and wiser. In fact, these sources have provided a better insight into what is really happening. What Next? Investors have a clear choice. The (consistently wrong) bearish pundits assert that the Fed is either panic-stricken and "behind the curve", caving in with an excessive rate reduction, or creating a new round of inflation. These pundits all agree that the Fed has it wrong -- but their policy prescriptions are completely different! Alternatively, one might conclude that the Fed has done a good job, and continues to do so. Their read on the economy is that it is still solid, but they accept the warning signals of problems. They are not merely looking at past data, and they are not focusing on a specific report. They are using a wide range of information -- government reports, private reports, consultations with those in financial markets, and anecdotal evidence from Fed Districts -- to look ahead. The interest rate reduction -- in their view -- is pre-emptive, not reactionary."

[Rogerdodger]

It's fun to bash the FED. And Bill Gates. And Walmart. And McDonalds. And anyone else who's successful.

[JAP]

Those who control the banks and money supply, control the world.

[Mtrader]

The FED need the rich people to bail him/her out. Who else can push the market up. The little got nothing, can't do dit'tld. Rich people are FED's good friend and vice versa.

[arbman]

There is nothing more inconsistent than the Fed's monetary statements over the past several months. I think there are a lot of intelligent research at the Fed, but also there is tremendous political pressure that annihilates their research time to time. There were times that you have to believe in them and there are times that you must go with your own results, imho... BTW, there is something called the crowd behavour; it happens when a group of very competent people come together, start following each other just because they can't really argue with each others' authority and eventually they become unable to make the right decision since it would not be the politically correct one... These happen at every branch of the gov't, not only in the Fed. - kisa

[OEXCHAOS]

I have to say, while they ain't gods, they ain't stupid. I watched Greenpan for a lot of years, closely. On the whole, I think that he did about as well as could be expected. I found only one or two errors. Even then, I don't know what he may have been looking at--what he averted may well have been much, much worse. All I can do is look at the long term outcomes. Not really bad at all. At least the stuff the Fed can and should legitimately control. E.g. the sub-prime thing? Not their responsibility. That is a function of the banking regulators and congress being asleep at the switch. We live in a country where anyone who sells you even a very small investment has to be well trained and has to, by law, make sure you have a full grasp of the investment. Failure to do so creates huge liability and subjects one to legal and regulator sanction... except when it comes to the largest, least liquid investment a person makes, and, of course, debt. It's stultifying, actually. The types of people I'd not be properly allowed to sell a $1,000 GOOG put credit spread to are/were eagerly sold complex mortgages to buy $350,000 homes, this is after they were issued a pocket full of moving-target credit cards with lots of hidden fees. I'm not a big fan of regulation, but if one has a society that pretends to regulate consumer finance, the legal and regulatory structure ought to be consistent. It's not, but that's not the Fed's fault. Mark

[arbman]

It's not, but that's not the Fed's fault.

I disagree, Fed should've known that when the rates went so low and then so high, it would disrupt the balances regardless whether there were abuses or not.

In fact, they should know better than most others whether the regulations and supervision were appropriate for the interest rate environment that they are controlling and they are deciding...

You can not drive your car at 180mph on a road designed generally for 65mph and crash into a wall and then blame the engineers, even if you are a cop!

- kisa

[OEXCHAOS]

You can blame, but should you? I say nope. Mark

[SemiBizz]

Greenspan and Bernanke are cut from the same cloth, both are morally bankrupt. Greenspan's "Gold and Economic Freedom" 1966 is a prime example of selling your principles down the river... As for Bernanke... he flat out lied to us about the extent of the credit problem and overstated the strength in the economy... These guys are not Gods, not by a long shot.

[HiFiGuy]

Greenspan and Bernanke are cut from the same cloth, both are morally bankrupt. Greenspan's "Gold and Economic Freedom" 1966 is a prime example of selling your principles down the river... As for Bernanke... he flat out lied to us about the extent of the credit problem and overstated the strength in the economy...



These guys are not Gods, not by a long shot.

I agree completely.

We're all content while bubbles are created via the electronic printing press. The average American was encouraged by excessively low interest rates and rising home prices to leverage up, buy more house than they could afford, and borrow from their future earnings. But then the consolidation phase begins where the FED's crony's consolidate their financial control of the world's assets. Rinse repeat. The FED private banking cartel exists for the benefit of Wall Street and the global bankers - not the U.S. public.

The USD is now being sacrificed to temporarily support asset prices and continue the illusion that all is well. It's just delaying the inevitable result of a complete destruction of the privately held wealth in this country. Boom, bust, boom bust. Morally bankrupt -100%.

Hopefully as traders we can avoid the wealth destruction by playing both sides of the market, diversifying into alternative assets, etc.. The average american with long-only 401Ks and no understanding of markets or economic reality will fare much worse.