Powell Better Shed His Silent Sam Role

High time our FRB head signaled action. I’m not talking just quarter pointers,  a spit in the ocean. Unlike Alan Greenspan who had a great gift for gab when he ran the FRB, Powell is a silent (and deadly) force. Alan learned to tangle with interest rates during his reign, I counted a couple dozen flicks in rates, up and down.  

This is the way the country should function. After all, the FRB has broad and timely access to all pertinent numbers. When it’s timely to act, you act, and if you’re wrong, you change horses in midstream. Alan pressed the discount rate freely during his tenure. When my old buddy, Jerry Goodman, asked Alan whether it was “fun” being FRB chairman, Alan looked at him quizzically but couldn’t come up with a response. 

Jerry was poking fun at the office and its awesome responsibilities, but, you do need good input to make timely decisions. To this day, I don’t understand why Paul Volcker took interest rates up to 13% to rid the country of its inflationary expectations. Yes, I know. Home builders sent Paul 2 x 4s in the shape of a cross. Stock market returns melted away and anyone carrying heavy debt cried himself to sleep. 

I miss Greenspan who bumped up or lowered the discount rate at will during his tenure. The Street loved such action, right or wrong. Players had some news to respond to, hot or cold. Unless Fed action is clearly stated as a course of control to get the country rolling again, it’s worthless. 

Lest we forget, the market faltered badly in 1973.  Sucked into the quicksand with horrendous real estate losses. We recovered in 1975, but wage inflation induced by General Motors did us in by 1982. Paul Volcker carried a big stick. The market touched down at book value, yielding 5%. 

Seabiscuit prevailed during the Great Depression, as a great come-from-behind racer. An inspiration for the two dollar better, this feisty animal ignored rates at 13%. So much for the inflationary expectations. Volcker lived in Washington in a modest efficiency apartment, not the Doge’s Palace. 

For me, tables have turned. I borrow serious money only for Treasuries.  If 30-year paper hits a 5% yield, I’m a winner. I don’t play spreads between 10-year and 30-year paper or between 2 and 10-year notes. That was last year’s game. Today, I crave a safe haven and a 7.5% long term return or better. 

Corporate bonds yielding 7% don't do the trick. Let somebody else bite his nails on interest rate coverage if we enter a serious recession.   

I didn’t like what I read about the anti-stimulus advocates at the FRB and U. S. Treasury after they bailed out Bear Stearns but pushed Lehman Brothers into bankruptcy. 

Don’t ever expect the government to do the right thing.  European central bankers remained spineless too long, pressing monetary policy, but knowing only fiscal stimulus, lower taxes and infrastructure spending would create jobs and consumer demand. 

Early sixties, anyone worth a million was in the top 5 percent category. Net worth of $100 million was rarified, super-wealthy, comparing with $10 billion today. The great fortunes made by technology honchos today were yet to come, a 1980’s phenomenon. Microsoft went public in the eighties.   

In the sixties, few people even knew that hedge funds existed. A fund with $20 million then made you a big operator. Today, dozens of partnerships stretch into the trillion dollar category.  They day trade without blinking, but don’t make serious money doing so. In fact, they mainly flail away, symbolic of an odd lot trader. 

Yes! I know! Grandma never promised me a rose garden.