Here's some news; Federal Reserve Chairmen are men that move markets. Are you surprised? Well, apparently the press just learned that secret this week. There has been non-stop reporting of the media laying claims as to who is the more influential market mover--the former Fed Chairman Alan Greenspan or current Fed Chief Ben Bernanke. As if the top two dogs were going to contend in a 15 round bout to determine once and for all who is "The Market Mover" champion.
Reading through the financial papers, the media would have you believe Mr. Greenspan is that guy and Dr. Bernanke is the challenger. Try your hand at determining who is the current top market prognosticator.
Shock Me Like
There is a good role model to follow and he gave some ingenious clues of what to look for. President Harry Truman had it right, "Give me a one-handed economist! All my economist say, ''On the one hand... on the other.'' In a week where the nation's two most renowned economist were the gossip in the financial press, whose hand should be raised and deemed best for you listen to?
In this corner, the former Head Banker took the gloves off. He came out swinging causing all kinds of controversy throughout the news. First off, many question Alan Greenspan's timing of the release of his new book "The Age of Turbulence: Adventures in a New World" during the same week as the FOMC meeting. Greenspan has paraded throughout the week appearing on numerous news shows and book signing parties. Since when does an economist transform his financial gibberish and mannerism's into Oprah-like charm and Will Rodgers wit? Remember the term "Fed Speak" anyone?
Well if that's your priority to learn about the musings and interpretations of what made Greenspan tick, there is his hand. Before you get ahead of yourself and put Greenspan's mug on Mount Rushmore, ask yourself what did he really do?
Twenty years ago, there was an economic circumstance brewing in the markets. Anyone recall Black Monday? Although he was just appointed in August of 1987, did Greenspan pre-empt those circumstances or react to them?
Who could forget the Long-Term Capital Management debacle, did Greenspan act or react to that situation? Chairman Greenspan commented before the House Banking Committee, "a failure of LTCM's failure could have caused substantial damage to banks and investors and might have impaired the economies of many nations, including the United States." How many "moral hazard" charges were cried for that action?
Then there was the "Irrational Exuberance" jargon and the Dot.com Bubble. Alan called that one too and acted miraculously. How long did Greenspan buy into the notion of the productivity gains of the "New Economy" when interpreting the economic statistics? How effective was Greenspan's prescription to raise interest rates six times from 1999 -2000 ... did that proactive Fed action impact the economy in a positive manner?
Finally, the next situation Greenspan warned of - the "Housing Bubble" or the fear of "Irrational Exuberance Par Deux" continuously throughout the end of his tenure. Who was manning the ship at the Fed when interest rates were at historic lows and allowing lending institutions the ability to offer the "subprime mortgages" with attractive teaser rates?
Maria Batriromo's exclusive CNBC interview "Greenspan: Power, Money & The American Dream" debuted on September 17th the day before the Federal Open Market Committee (FOMC) meeting. Is this another example of Greenspan trying to one up the Bernanke at the FOMC's meeting the next day to conduct policy business?
Now on the other hand, market gurus have been very skeptical of the rookie status of the current Chairman's ability to grasp the "real world" nuances of the market. Jim Crammer's "they know nothing" tirade heard around the world, also known now as the infamous "Erin Burnett's Giraffe Dress Interview," fell on deaf ears at the Federal Reserve for weeks.
Ben Bernanke's academic propeller-head persona began to transform into a Market Wizard by tampering with the long forgotten discount window. His opting to cut the discount rate, instead of the Fed Funds benchmark, on Aug. 17th was significant because confidence had deteriorated with the slump in assets tied to subprime mortgages. Many considered this a shrewd move because it injected liquidity into a tight market without seemingly bailing out Wall Street's high rollers.
Now, after weeks of water-cooler gossip and rumor, the Federal Reserve reduced its benchmark rate by half a percentage point, to 4.75%. This marked the first decrease in U.S. interest rates in four years. Along with that unpredicted policy adjustment, the Fed again cut the discount rate a half percentage point to 5.25 percent.
As a result, the Dow's increase marked its biggest one-day leap since Oct. 15, 2002 and its largest percentage gain since April 2, 2003. The broader indexes also climbed, with the Standard & Poor's 500 index up 2.9 percent, and the Nasdaq composite index up 2.7 percent, ending at 2,651.
Finally, the Central Bank gave Wall Street what it's been clamoring for by cutting Federal Funds interest rates by even more than nearly all analysts had predicted.
Actually, according to a Bloomberg News survey only 29 of 105 anticipated such a move. In fact, most analysts predicted a smaller cut after Bernanke warned in a previous speech that investors must acknowledge their losses. ``It is not the responsibility of the Federal Reserve - nor would it be appropriate - to protect lenders and investors from the consequences of their financial decisions,'' he said. That differs from the currently Fed report citing that it ``will act as needed to foster price stability and sustainable economic growth.''
So has Bernanke grown out of that propellerhead hat yet? ``It is a bold step that is going to start to calm financial markets'' remarked Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York and that, ``FOMC now stands for Friend of Market Committee.''
Even Jim Crammer is on board with the Fed Chief now. He proclaimed after the FOMC meeting "Ben Bernanke is now his friend" and actually replaced the "they know nothing button" from his Cramerica machine and with "they know something." He also tossed a fan favorite prop, the rice box with Bernake's picture on it.
He went on the further claim "they finally got it right." Cramer did a complete one-eighty and summarized "Home and job are more important right now than inflation." Jim even talked of "A Bernanke celebration portfolio."
Larry Kudow had kudos for Bananke for implementing a "fed shock and awe policy" and dedicated his show as celebrating "Ben Bernake's coming-out party." He went on to say, "A lot of traders called me today to say the Fed Chair Bernanke regained the faith of Wall Street and market confidence has increased enormously." Larry then stated, "Bernanke's coming out party just trumped Greenspan coming out with his new book."
Wayne Angel, a former Fed Governor, said he "Likes Bernanke as Chainman, and why I'm delighted so much and that he has raised his level of esteem, so that now I want to see him reappointed when his four year term is up."
So who is the market maestro now?
A commonality of each man is that they both were very gifted musicians at one point in their life. Actually, it's ironic that they both played a single reed woodwind instrument. Alan played the Clarinet and Ben the Saxophone.
Who's style jazzed the market best? Bernanke's Fed will use the actual scheduled FOMC meeting to conduct Fed business verses Greenspan's occasional behind the scenes quick moves with conference calls to initiate policy. On one hand, we have no more obfuscation Fed speak while commenting in public or ridiculous briefcase indicators to signify what secret action may arise. On the other hand, we have an academic style of analyzing current facts with a friendlier open-door communication policy and conducting its business at scheduled times. Which hand is the "right" one?
Greenspan's Black Monday vs Bernanke's Shock & Awe Tuesday - Who's Hand Will Rein Victorious? Shock Me Like
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