Anthony Peters
SwissInvest strategist
I’M NOT SURE whether “excitement” is the word that springs to mind as we contemplate Janet Yellen becoming chairman of the Federal Reserve System. But her predecessor, Ben Bernanke, although active during some of the most difficult times during which any central bank chief could wish to be in charge of monetary policy, was not exactly a bundle of laughs.
Bernanke, despite being criticised and sniped at from all corners of the markets, proved to be a solid pair of hands, although it will surely take a few years before we will be able to pass fair judgement on his tenure.
Bernanke’s predecessor, Alan Greenspan, might have done much wrong, but at least he provided entertainment.
One of Greenspan’s charming idiosyncrasies was the way he found rather obscure statistics to explain his thinking. During the Greenspan era, Fed-watching became as much a sport as Kremlin-watching had been before the emergence of Mikhail Gorbachev.
He was quoted as having said to a Senate Committee in 1987: “Since becoming a central banker, I have learned to mumble with great incoherence. If I seem unduly clear to you, you must have misunderstood what I said.”
WHILE ON GREENSPAN quotes, the one that particularly stuck with me was not one from him – but about him. It came from Jim Rogers as early as 2002, six years before the collapse of Lehman Brothers. Rogers wrote in October of that year: “Greenspan’s reaction with regard to the stock-market bubble has caused two more bubbles to grow: a real-estate bubble and a consumer-debt bubble … History will judge him one of the worst central bankers ever.”
At this point my head is filling with the words of Marc Anthony from Shakespeare’s Julius Caesar, which are known to every school boy of my generation: “Friends, Romans, countrymen, lend me your ears; I come to bury Caesar, not to praise him; The evil that men do lives after them; The good is oft interred with their bones; So let it be with Caesar.” For Caesar read Greenspan?
Greenspan never failed to use the full force of his team of economists at the Fed to unearth weird and wonderful works on the economy, which he would cite in the most bizarre of circumstances, often leaving even the most sophisticated of audiences dazed. There was one occasion I recall when he quoted the work of two undergraduates from a small college in the US Midwest that had Fed-watchers running for the map to see where exactly these people were before they’d take the time to study what they had written. I can assure you that they were never mentioned again, but they had their 15 minutes of fame.
As much as the markets expect the Yellen chairmanship of the Fed to be the continuation of the Bernanke one (but in a skirt), I would be very surprised if it were
WHY THESE THOUGHTS? Well last week I came across an article that tells of Janet Yellen studying the number of Americans voluntarily quitting their jobs. About 56% of “exits” are the result of resignations rather than of firings or redundancy. This seems to be one of the statistics she favours when gauging the level of confidence within the economy. The “quits ratio” is seen as a useful indicator for it reflects actions taken rather than intentions expressed. It also reflects labour market tightness as resigning staff are commonly assumed to have the next job lined up before they hand in their notice. Simple but effective.
The canon of monthly statistics, now including an ever greater number from the private sector, which we hop from and to, has grown exponentially from the time I first entered this business when all that really counted were the monthly money supply figures and the merchandise trade balance. I would not wish to suggest that the quits ratio (which is compiled by the US Department of Labor) is an obscure stat but it certainly stands a chance of becoming a market-moving release if dealers and investors get it into their heads that Ms Yellen will be giving this figure new and previously unknown weighting when formulating her policy intentions.
As much as the markets expect the Yellen chairmanship of the Fed to be the continuation of the Bernanke one (but in a skirt), I would be very surprised if it were.
The problems facing Ms Yellen are in some respects more akin to those that Greenspan had to deal with in as much as she will have to try to find a way to pursue a tightening policy while aiming to prevent the markets running off in headlong panic. Anyone who remembers February 4 1994 will know what I mean.
I doubt this will happen in the immediate future. But to quote old Alan one last time: “Rising interest rates have been advertised for so long and in so many places that anyone who has not appropriately hedged this position by now obviously is desirous of losing money.” That was 2004 and the unmentionable did not hit the whatnot until 2007.