I never thought I would ever say this but I was thinking the other day how I long for the days of Alan Greenspan as Fed Chairman. Don’t get me wrong, I think that his arrogance and wrong- headed thinking rank right up there with the worst of the Fed Chairman. The Maestro’s long diatribes ranged from the appropriateness of adjustable rate mortgages, to the shape of the oil futures curve. One thing that he did however was couch the Fed intentions to always shelter the capital markets under a cover of obfuscation. Our most recent Fed Chairs feel no compulsion to “fake it”, their role is to micro-manage the capital markets and no one should be under any misconceptions otherwise. In fact, the latest Maestro is particularly adamant that the suppression of rates has not necessarily created anything that she can’t handle. Our response to that is: “We Will See”. We were describing the state of markets the other day to someone using the accident victim as an analogy. The capital markets/global economy in 2008/2009 experienced a self-inflicted crash, followed by a near death experience. The expanded role of Central Banks was initially to save the patient. However, their ever expanded duties included administering morphine, gassing up the new car and pulling it around front for the quasi-healthy patient to take another joy ride. The problem is that how many near death experiences can one person have, and no one car crash looks like another. As we have discussed, one would expect a certain amount of Central Bank hubris, given that markets have recovered in such a sharp and unexpected fashion ( who would expect that sub-prime loans are exploding and that AAA CLO’s containing the crummiest of credits are exploding as well). However, markets have a way of acting in very non-linear ways and the belief that macro-prudential market regulation will do the trick ignores the speed at which dislocations can occur. Fade Chairman Yellens woman’s intuition: BUY STUFF
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