Evaluating the Fed: Pick Your Sources!
At "A Dash" we have some strong viewpoints about the Fed. Prior articles have covered this point, including the following key points:
- Most of the big-time Street critics of the Fed (including plenty of those who are really smart, great traders, and offer timely advice) are overplaying their hand with Fed criticism.
- Wall Street guys need to learn that intelligent people can look at the same data and reach different conclusions. The fact that one has a lot of money to manage or gets a big paycheck does not imply omniscience.
- People confuse what they believe the Fed should do with what they expect the Fed to do. There is more money to be made by predicting the Fed, than by pontificating about their errors.
- Disparaging the actual credentials of others does not increase one's status. The Internet and mass media create a playing field where many lowest common denominator arguments have mass appeal. That does not make them right.
- So-called academic credentials are unfairly disparaged. The members of the FOMC and the staff have extensive consulting experience in actual situations involving many countries. This experience is arguably more relevant than the perceptions of hedge fund managers, corporate CEO's, and guys on a bond trading desk. At the very minimum, these latter sources all have a book or a company and a corresponding viewpoint. The FOMC members do not.
- There are different responsibilities. The Fed has a broad constituency. It is not the same as that of Wall Street managers.
- Fed critics often have a contradictory position. On the one hand, they evaluate Fed moves in terms of market effects. On the other hand, the criticize the Fed for "propping up stocks."
Helping with the Confusion
There are some commentators who analyze Fed policy in very objective terms. They look at the impact on LIBOR, credit default spreads, getting liquidity where it is needed, and gaining stability in credit markets.
Others criticize the Fed in terms that are basically ad hominem. They see the FOMC and the hundreds of professional economists on staff as stupid, stooges, or whatever. It is fine to disagree about public policy directions. We live in a free speech, democratic environment. The investor needs to learn to discriminate between opinion and data.
Our Recommended Sources
There are several sources that every thoughtful investor and trader should read. These sources all deserve much more attention from those in the media.
- Macroblog, now added to our list of featured sources, is written by Dr. David Altig, now Vice-President and Research Director at the Atlanta Fed. We loved his commentary when he was at the Cleveland Fed and we are delighted to see him resuming his blog (with other contributors).
- Alea, also (belatedly) added to our featured sources, is written by jck, someone with obvious credit market expertise who unfailingly looks at actual indicators. Check out this article for an example of an objective assessment, based upon indicators.
- Bob McTeer's blog, already on our featured list, but given little recognition by most.
In a future article, we plan to contrast these sources with the emotional commentary widely featured by mainstream media.
As a starting point, anyone who is serious about this subject should read the entire Altig article on the Fed actions during his one-year blogging hiatus. It is a valuable review. It is difficult to capture in a few quotations, but here is the main theme:
activity had a certain frenetic, whack-a-mole feel to it. But I think
it appropriate to view the Fed's actions over this period as what I
believe them to be: A measured and logical sequence of steps to address
very specific liquidity distress in financial markets.
He goes through the chronology of actions:
logically consistent steps that neither lurched to extreme solutions
nor ignored the imperatives of the problem at hand (and describes it).
been, and could not be, a magic elixir for solving all financial market
woes, I would take the bet that they are least providing enough
stability for the market to continue the painful process of healing
itself. Getting to this point has not always been pretty in real time,
and there is plenty of room for debate about the long-run costs and
benefits of each step along the way. But given a little time for
perspective I believe we will find a certain beauty to it all.
Read it all. It is based upon data and provides a perspective that is little-appreciated on The Street.
It is important to consider differing perspectives, particularly those of the people charged with making public policy decisions.