If you haven't already, all you ERs and ER wannabees should spend a little time with Sir Alan Greenspan's testimony to Congress last week and the accompanying Monetary Policy Report To Congress. You can find it on WWW.federalreserve.gov.
Very, very interesting.
Apart from all the soothing, purring sounds about the economy and the upbeat assessment going forward, Sir Alan has left a lot of read-between-the-lines meat on the table for the Fed watchers to digest and interpret.
As one approaching retirement himself, I think Sir Alan may be kibbitzing on our little retirement Board. He, too, is flustered by the current state of Long Term interest rates. He doesn't really know why Long Term rates haven't moved up. A sample of his thinking:
"In this environment, long-term interest rates have trended lower in recent months even as the Federal Reserve has raised the level of the target federal funds rate by 150 basis points. This development contrasts with most experience, which suggest, that, other things being equal, increasing short-term interest rates are normally accompanied by a rise in longer-term yields....For the moment, the broadly unanticipated behavior of world bond markets remains a conundrum. Bond price movements may be a short-term aberration, but it will be some time before we are able to better judge the forces underlying recent experience."
Translation from Greenspan-speak: I don't know what's going on but this ain't friggin' right. No way this is friggin' right.
Like the rest of us, Sir Alan may be thinking of the paltry returns going forward that he is going to be earning on his retirement portfolio. He would like to see those LT rates moving up along with the rest of us retirees and soon-to-be retirees. It would confirm that his expectations (fears) for the economy are being borne out. In fact, the premise of his higher ST interest rate policy is to cool off an overheating economy facing inevitably higher interest rates. But he can't find any (official) inflation to point to. Maybe he knows the CPI is a crock and that "real" inflation is eating real people alive. Be that as it may, the only rates moving higher are his. His presentation to Congress forecasts the most Goldilocks outlook I can recall for a long time. So is he implementing the exact wrong policy at the exact wrong time? Economy over heating? Show me. This is the real conundrum if you ask me. And the markets hiccupped last week at the prospect of higher rates down the line virtually guaranteed by Sir Alan. Can anyone say : unstated Fed policy is to raise interest rates until the economy slows down whether it needs to or not? How about: managed soft landing? How about: slowing growth in profits? How about: higher capitalization rates? How about: P/E compression? So, it appears we are to get a slow motion car wreck engineered by the Fed tap-tap-tapping on the brakes to bring us gently into the ditch beside the road instead of a pedal- to-the- metal screaming tires type crash. At least that appears to be the plan.
Donner
Very, very interesting.
Apart from all the soothing, purring sounds about the economy and the upbeat assessment going forward, Sir Alan has left a lot of read-between-the-lines meat on the table for the Fed watchers to digest and interpret.
As one approaching retirement himself, I think Sir Alan may be kibbitzing on our little retirement Board. He, too, is flustered by the current state of Long Term interest rates. He doesn't really know why Long Term rates haven't moved up. A sample of his thinking:
"In this environment, long-term interest rates have trended lower in recent months even as the Federal Reserve has raised the level of the target federal funds rate by 150 basis points. This development contrasts with most experience, which suggest, that, other things being equal, increasing short-term interest rates are normally accompanied by a rise in longer-term yields....For the moment, the broadly unanticipated behavior of world bond markets remains a conundrum. Bond price movements may be a short-term aberration, but it will be some time before we are able to better judge the forces underlying recent experience."
Translation from Greenspan-speak: I don't know what's going on but this ain't friggin' right. No way this is friggin' right.
Like the rest of us, Sir Alan may be thinking of the paltry returns going forward that he is going to be earning on his retirement portfolio. He would like to see those LT rates moving up along with the rest of us retirees and soon-to-be retirees. It would confirm that his expectations (fears) for the economy are being borne out. In fact, the premise of his higher ST interest rate policy is to cool off an overheating economy facing inevitably higher interest rates. But he can't find any (official) inflation to point to. Maybe he knows the CPI is a crock and that "real" inflation is eating real people alive. Be that as it may, the only rates moving higher are his. His presentation to Congress forecasts the most Goldilocks outlook I can recall for a long time. So is he implementing the exact wrong policy at the exact wrong time? Economy over heating? Show me. This is the real conundrum if you ask me. And the markets hiccupped last week at the prospect of higher rates down the line virtually guaranteed by Sir Alan. Can anyone say : unstated Fed policy is to raise interest rates until the economy slows down whether it needs to or not? How about: managed soft landing? How about: slowing growth in profits? How about: higher capitalization rates? How about: P/E compression? So, it appears we are to get a slow motion car wreck engineered by the Fed tap-tap-tapping on the brakes to bring us gently into the ditch beside the road instead of a pedal- to-the- metal screaming tires type crash. At least that appears to be the plan.
Donner
