Tuesday, June 06, 2006

Shooting the Messenger

“Every time he opens his mouth, the market tanks.”

That’s what I kept hearing during yesterday’s market sell-off.

“He” is, of course, Ben Bernanke, the poor guy who had to follow in Alan Greenspan’s hallowed footsteps as Chairman of the Federal Reserve.

Under Bernanke, the Fed has raised interest rates precisely twice. Under Greenspan, the Fed raised rates fourteen times. But, under the twisted laws of Human Nature, Bernanke is Guilty as Charged. His crime: spoiling the party.

Now, Greenspan raised rates fourteen times because he had previously dropped them to virtually zero, triggering the greatest home-building speculation boom in the history of the country. Al figured—and with his reputation in Washington, who was going to argue?—the Fed could gently deflate the Greenspan Housing Bubble in a way that everybody would win.

But Bubble aftermaths are never pretty.

Just look at the last one. It occurred only five years ago, when Greenspan himself tried likewise to gently deflate the greatest new-era business speculation boom in the history of the country—the Greenspan Internet Bubble—and triggered a recession.

So, who’s the villain here? A guy who tells the world inflation is running a little high and maybe rates aren’t necessarily going down any time soon?

Or his predecessor, whose twenty years in control led directly to $70+ oil, $300+ copper and $600+ gold?

Now, I’m not a Greenspan-is-Satan Conspiracy Theorist, although I have friends who are entirely convinced that “Easy Al,” the Fed and various “Powers that Be” have cynically manipulated markets in everything from U.S. stocks to U.S. Dollars to Japanese bonds and Saudi oil policy for their personal and political gain, for the last decade at least.

(I’ll never understand why, if the Fed can do whatever it wants, Saudi Light isn't at $2.00 a barrel instead of $72 and the Dow isn’t at 110,000 instead of sloshing around 11,000?)

As far as the economy, Fed policy, the Dollar and interest rates are concerned, ‘it is what it is’ and, as investors, we have to deal with the facts as they are, not as we might wish them.

And this Benanke-bashing seems like plain old messenger-shooting, the kind practiced by insecure CEOs who blame their stock price declines on short-sellers, and voters who say they want “plain talk” but then won’t vote for anybody who tells them anything like the truth about things like taxes and why they’re still paying too little for unleaded gasoline and home heating oil.

Ben’s got an impossible job: following a legend. Just ask Jeff Immelt at GE how he likes having every move he makes compared with Jack Welch, or Sam Palmisano at IBM how he likes being compared to Lou Gerstner.

Even the Great Greenspan got off to a rough start back in 1986, after he took over from the Legendary Inflation-Killing Paul Volcker. Or has everybody forgotten what happened in October of 1987?

Jeff Matthews
I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.


bubbles said...

I don’t understand it either Helicopter Ben is no different than Alan “Two Bubbles” Greenspan. He just inherited Easy Al’s messy and now has to clean it up. Everybody likes a boom and nobody likes a bust. So, yeah shoot the messenger and maybe the boom can continue.

Jonathan said...

new to reading this blog, but I have to say - bravo...you really seem to hit the nail on the head...keep up the postings!!

CR English said...


It is less an issue of "Shoot the Messenger" than "the Messenger is Shooting Himself". The speech Bernanke gave yesterday is probably the one he should have given a month ago. If you remember back then he seemed to indicate that the Fed was close to being done, only to decide that the best way to retract this was through Maria on CNBC. I think it is the flip flops that is killing the markets right now.

Delaware Beach Man said...

We'll see a lot of crying and Fed finger pointing when Real Estate prices start to decline big.

whydibuy said...

I'm gonna propose a concept that you may find silly but that I truly believe in. LUCK. being at the right place at the right time is a huge factor in peoples success. Especially for Fed chairman Greenspan. He got to reap the reward for volkers inflation crushing rates while Volker was made villian of the peace. Greenspan also encountered a tech revolution which comes along once in a blue moon with computers. As well, he oversaw a enormous increase of household debt that translated into spending and a gung ho economy. Also, energy prices were low or declining his entire tenure making his job all the more simple. He had the luck in spades. Some people have it and some don't. Given Greenspans run of luck, I predict here and now that B will get the opposite of what G experienced. And he won't lovinly be call the " maestro" of the economy or have people hanging portraits of him next to Einstien or Issac Newton.

Aaron Koral said...

Jeff: Mr. Bernanke's hawkish comments about fighting inflation has "upset" a number of market participants (i.e., selloffs in stocks and bonds). I think the criticism about Mr. Bernanke being "flip-floppish" is unwarranted, however, IMHO. Mr. Bernanke, like Greenspan before him, is dependent upon the data at hand (going back to your comment about 'it is what it is') to determine whether interest rates should be raised until inflation measures come into a reasonable range to stop tightening. In my opinion, neither Greenspan nor Bernanke is a villian. The "villians" are those who "over-indulged" (i.e., over-leveraged - such as loans for speculative housing investments, as an example) from the "punch-bowl" that Greenspan and Bernanke "spiked" (i.e., lowering interest rates). I could be wrong, though....

Sam S. Park said...

When will the market stop depending on what the Fed says word-by-word. Everything Bernanke and Greenspan said were based from the stats. It's like blame the numbers, not the messenger.

Delaware Beach Man said...

It is hard to believe that Bernanke
will keep raising rates with the Real Estate market looking weak.

Himalaya Wolf said...

Bernake is not a Wall Street guru and he lacks the influence that Alan Greenspan does with the Financial Market so that if he has inheritied the Fed that has been told the inflation is running high, Bernake has to agree with it and to continue raising the interest rate and such kind of action would definitely strengthen the greenback but inhibiting export from the U.S. as well as increasing the cost to service both the out of control Current Account Deficit as well as the Federal Budget Deficit.Besides, the housing market would definitely be cooled and a possible slowdown of the economy would be unavoidable in the second half of 2006....


The Unknown Broker said...

I believe that part of the problem is indeed the perception that Mr. Bernanke is a flip-flopper.

I believe that a more significant source of the skittishness over the role of the Fed Head is the often contradictory statements being thrown around by other Fed officials. Market participants are getting the uneasy sense that no one is really running the Federal Reserve. The public chattering by Poole, Fisher, et al gives the impression at least of weak leadership by Mr. B.

I haven't gone to the time and trouble of looking up all the quotes but the one-guy-is-hawkish-and-another-is-dovish-and-another-said-it's-the-9th-inning-a-long-time-ago-so-what-is-this-a-doublheader backdrop gives the impression - correct or not - that there is no strong hand in charge.
(Yes, I know the "9th inning" comment was pre-Bernanke, but that seemed to get the blabbing ball rolling.)

The poster above mentions that the Fed chief is data-dependent. True, to a point. However the data change and fluctuate and can move this Fed's boat back and forth, closer to shore...further away...up and down...tossed by the waves...IF there is not a lighthouse of sorts. That lighthouse is a clear set of goals, a plan of action, and a firm-handed captain who can both interpret the choppy waters and keep an eye on the port. That is what the markets fear does not exist.

And the yammering of all the rest of the sailors makes it look like a bad high school play version of "Mutiny on the Bounty."

You know what they say about "loose lips."

I'm no huge Greenspan fan, but at least you knew who was in charge. And do you think Mr. Volker would have put up with all the position jockeying and limelight seeking?