At the Kansas City Federal Reserve Symposium in Jackson Hole, WY next Friday, Ben Bernrnanke will have bigger problems to contemplate than I did when I visited that town…
I worked the ski season of ’87-’88 there. I spent five glorious, snow-filled months trying to figure out how to drive in white-outs (you don’t), and how to jump off rocks with a 25-foot vertical drop (Corbet’s Couloir… you do it quickly, before you think too much).
Ben Bernrnanke’s problems are more abstract with actual consequences for you and your money. He has to think about the best way to save the global financial system from cratering. And given that the entire world is expecting something from him, he’s under some pressure to perform.
The Economic Symposium is where Bernrnanke surprised the world two years ago by announcing QE2. That program involved the Fed buying the equivalent of all U.S. bonds issued from November 2010 through June 2011, roughly $600 billion worth.
That was back in the heady days when people thought central bankers could fix everything with a spot of ink and a thumb on interest rates. Now things look a little different…
Given that a surprise was once unveiled in Jackson Hole, the meeting is now expected to yield a result. In fact, because the economies of the world keep circling ever closer to the drain of recession and, in the case of some Southernrn European nations, depression, every single meeting of central bankers is expected to yield results.
No longer is the investment world sleeping through speeches. Now participants and pundits hang on every word, looking for a clue as to what a group of unelected bureaucrats will do next to save over-indebted, politically-gridlocked nations.
We know what results are required…
The world demands more monetary easing.
There shall be easier lending terms. There shall be an extended period of low interest rates. There shall be a debt reduction/forgiveness program.
There must be.
Because if there is not, then all is lost. Countries are not unwinding their debt and cutting their deficits. Consumers are not spending with abandon. Banks are not lending every last penny. Industrial capacity is languishing. Industrial commodities are falling.
Like the characters from “The Avengers” movie, central bankers are the only ones with the power to “fix it all.” (Let’s be clear, we don’t think they can fix anything… they can only prolong the agony.)
So what will they do?
On Friday, August 31 at 10:00am, when Bernrnanke speaks, what saving grace will he present? Mortgage bond buying? More Treasuries? Further twisting?
Our guess is that we will get… nothing. Or more specifically, no concrete action just yet. Instead, we believe the Fed will hold its proverbial tongue when it comes to a real program, instead hoping to use hints and innuendos to talk markets off the ledge.
There will be terse words about monitoring the situation, or closely reviewing the trends in unemployment and growth, but there will be little for markets to hang their hat on.
Unfortunately, this does nothing to help investors or business owners. It is simply one more distraction from the matters at hand making the situation worse, not better.
Life would be much simpler if the Fed – as well as Congress – would simply make a decision and stick to it.
Give us the rule book already! Tell us what to expect so that we can make our plans and pursue our strategies. By continually keeping the world on edge, nothing falls over, but nothing is saved either.
Expect nothing, and don’t be disappointed.
P.S. While the Fed continues to string us along, we’ve implemented a strategy that allows us to build income streams and make profitable investments… Whether the economy goes over the edge now or later, it doesn’t matter to us anymore. Listen to this video to find out why.
Ahead of the Curve with Adam O’Dell
The Fed Has a Few Problems – Like How to “sell” QE3
First, it’s a victim of its own success.
Until around 2008, no one cared about the Fed. It was the nerdy kid that never got invited to the party… The market snoozed through its policy briefs.