In many ways if was even worse than the NFPs. The Ms came out 4 times a months instead of just one. And the tape crossed on this exactly at 4pm. There is no market to move size after 4. You had to dump something in Asia or Europe. Often you had to wait to the following morning in NY to find liquidity.
People made/lost fortunes on this. An outfit called Salomon Brothers had a guy named Henry Kaufman. He was good with numbers, and had a real handle on calling the headline. “Henry the K” would whisper in someone's ear and the Brothers made a bundle playing both sides of the casino.
It got so out of hand that they changed the rules. They moved the numbers to a Friday 4pm release. This of course was the worst possible choice for guys like me. You had to wait the whole weekend to see how things would work out. I lost a few weekends worrying about Monday.
Here’s the joke. These numbers mean next to nothing today. They actually stopped keeping track of M3. Money supply is still discussed, but the weekly numbers are a ho-mummer. Think of what a stupid fixation the market had at that time. We might do it again.
I bring this up because I do not believe in coincidences. Here is an example of a “coincidence” that should not be trusted. The first piece is that the Fed is releasing a statement at 2:15 Wednesday. The second is that Jon Hilsenrath wrote (another) article that give a very clear insight into the thinking of Mr. Bernanke.
The bottom line on the Hilsenrath story is that Bernanke is pushing to change monetary policy so that it goes on autopilot when inflation exceeds or falls below clearly defined bands.
Bernanke is an academic. He wants a computer to define when to tighten and when to loosen policy. That view fits in with his orderly view of the world. Oh, that it were orderly.
Ben also wants to introduce this new policy as a defensive move. He knows he is headed for a ton of criticism over QE. Both domestically and internationally. To blunt that he will introduce Inflation Targeting (“IT”). It removes him as a decision maker, so no one can blame him for the consequences. Very convenient. Not unlike the new rules that make it impossible for the Fed to incur a loss.
The Fed statement should be, well, a ho-hummer. No changes to anything. But read through the language and I think you will find:
i) Some talk that the Fed is forming a formal group to review inflation targeting as a policy determiner.
ii) A meaningful increase in the GDP forecast for 2011. If they push this estimate to 3.3% or higher it will fly in the face of continuing QE.
If you play poker you look for “tells”. Something that gives you a better “read” on the other guy’s hand. Should we see some language from the FOMC that confirms they are going forward with IT there will be two tells. The first is that it confirms the cozy link between Bernanke and the WSJ. It will also confirm that Bernanke is calling all of the shots. Everyone else is just saying “yes”. (Look for no dissenters Wednesday. New Board = Yes Ben)
US monetary policy can’t be run by a robot. A pragmatic approach is required. Bernanke is shunning the Fed’s responsibilities. He doesn’t want the Fed to be accountable. Very convenient.
IT won’t work of course. It will drive the market nuts with every blip up and down with every measure of inflation out there. Because the Fed has set visible targets they will be forced to act. Failure to do so would be very damaging to their credibility. But they will inevitably be forced to act at precisely the wrong time and in the wrong fashion. Just like they have done in the past.
The funny thing? 20 years from now someone will write about this and point to the new street bandits that made a killing and conclude, “what a stupid fixation the market had”.
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If this were a game, I would say that BB is a player who has lost confidence in himself and his abilities and is seeking to fix blame on someone else for what he sees as an inevitable loss. None of the Fed governors wants to hold the hot potato so they will all vote yes and keep their heads down.
ReplyDeleteBB seems more and more like a man who thought he had all the answers because his theories told him so who finds out that his theories were wrong or at least inadequate, and is completely flummoxed about what to do next. Having no practical understanding of financial markets, he is left to drift, seeking merely to avoid blame.
No, the joke's on you. Money has always mattered (& nobody ever followed Kaufman). Some people just can't define it and therefore can't count it.
ReplyDeleteInflation targeting is a must, but once again, there is a problem with its definition.
I am curiuos if "fixing the economy" can be looked at as a project. Projects have five stages.
ReplyDelete1. Euphoria and Excitement
2. Disenchantment
3. Search for the Guilty
4. Punishment of the Innocent
5. Reward for the Uninvolved
I think we are between 2 and 3 and will not make it to 5.
@Anon: Well put.
ReplyDeleteThis post is opaque.
ReplyDeleteYour point is not clear.
What are you trying to say?