Fedspeak: Polyglot Perspicacity
"Twas brillig, and the slithy toves Did gyre and gimble in the
wabe; All mimsy were the borogoves, And the mome raths
outgrabe." Reading silently or aloud creates rhythmic nonsense,
you might think. Humpty Dumpty explains, defines, and clarifies
for Alice. Soon Alice sees meaning. As she does, the upside
downs become the right side ups.
Alan Greenspan often sounds like the Jabberwocky as much as
Humpty Dumpty seems senatorial. Mr Greenspan's econoblab
explained a lot without telling much. His Federal Reserve
messages provide detailed economic data with vague nuanced
economic outlook. Many Federal Reserve watchers hope Mr.
Bernanke (Alan Greenspan's successor) tells us a lot so that
senatorial Humpty Dumpty's do not seek explanations for
economics "...that haven't been invented just yet."
When the Federal Reserve Chairman presents the "Semiannual
Monetary Policy Report to the Congress", it is called the
Chairman's testimony. Testimony may be defined as "Evidence in
support of a fact or assertion; proof." Statements must be lucid
and transparent to the hearers to prove assertions or claims.
Mr. Bernanke seems to do this with greater clarity. His
sentences are brief, but not terse. According to a CNN Money.com
poll, most respondents consider Ben Bernanke's testimony (or
shall we spell it "testimoney"?) the "Same as Alan Greenspan".
If transparency and clarity mean something, it is time for Mr.
Bernanke to "explain" it to us.
* The new Fed Chairman used these phrases: "The U.S. economy
performed impressively in 2005." * "...Energy prices rose
substantially yet again." * "The Gulf Coast region suffered
through severe hurricanes that inflicted a terrible loss of
life" * "Inflation pressures increased in 2005"
A friend calls these "keen observations of the obvious."
We should expect more from the Fed Chairman. Investors need to
know if rates will go up rather than guess. Ratcheting interest
rates slows the housing market (Greenspan mentioned this
"bubble"), increases the cost of debt as credit card companies
and mortgage companies leverage rates, and sends equity and bond
markets into an economic whirlpool.
Rate increases may control inflation, but they do little or
nothing, in my opinion, to encourage an economy. There is a
greater likelihood that the Fed will overdue interest rate
increases (up or down). This will push the economy into a
recession or a bubbling boom.
Residents of econoland, known as economists, worry that the Fed
will overdo their inflation concerns. According to some, the Fed
has managed inflation poorly since World War II. Nothing in this
Federal Reserve Chairman's testimony suggests otherwise.
Does the Fed move rates up or down, or do interest rates adjust
coincident with inflation reports and other economic data? Watch
the market before and after the Consumer Price Index reports.
The January CPI shows a .7% inflation increase with 70% of that
increase attributed to energy costs. You would expect the market
to collapse on such news; it did not.
The markets go up sometimes and down others. Humpty Dumpty,
would you make the upside downs become the right side ups?
"`Of all the unsatisfactory--' (she (Alice) repeated this aloud,
as it was a great comfort to have such a long word to say) `of
all the unsatisfactory people I EVER met--' She never finished
the sentence, for at this moment a heavy crash shook the forest
from end to end."
Ray Randall serves clients as a registered investment advisor
with his firm, Ethos Advisory Services, Essex, Massachusetts
Ethos Advisory Services. He has wide experience within the
financial services industry, writes a weekly newsletter for
http://www.ethosadvisory.com Ethos Advisory Services, and
coordinates the developments at http://www.echievements.com
Echievements.com. Ray holds a Masters Degree from Gordon-Conwell
Theological Seminary, Hamilton, MA. You may call Ray
(617-275-5565).