views expressed in this column are solely those of the author and do
not reflect the views of SVB Financial Group, or Silicon Valley Bank, or
any of its affiliates.
I came in as the sun came up.
She glared at me over her
She said, "Where you been?" so I thought real hard
said, "I fell asleep in that hammock in the yard."
She said, "You don't know
it boy, but you just blew it."
And I said, "Well that's my story and I'm
sticking to it...
I got that deer-in-the-headlight look.
She read my face
like the cover of a book
And said, "Don't expect me to believe all that
'cause just last week I threw that hammock in the attic."
got so thin so you could see right through it,
and I stuttered, "Well that's
my story and I'm stickin t-t-to it.
- Collin Raye
As market watchers know all too well, the chairman of the Fed
has tremendous power over financial and economic markets the world over. In past
years, interest rate shifts up or down in small increments would reverberate
throughout the world, affecting NPVs of every project from building a new oil
rig to a night of dinner and dancing.*
In fact, the shifting of interest rates is such a powerful tool
that even the indication that rates might move could have a dramatic
affect on market prices. Greenspan used this high sensitivity to his advantage,
likely spending more time with a thesaurus than any poet in the 19th
Every six weeks when the Fed's Federal Open Market Committee
(FOMC) released its statements, traders of all stripes would pour over every
word for any change and deliberate about what that change might mean. Even
today, Bloomberg and other news services provide a side-by-side comparison of
the current statement with the most recent version, highlighting every detail
that differs in any manner.
Many times, Greenspan would try to nudge the markets one way
and his "push" would be misinterpreted as a "pull." No problem. He would simply
come back into the public and push harder until the message was received. It is
widely believed that he used one or two reporters as mouthpieces throughout his
18+ years in the Chairman's seat. Traders took the columns written by these
reporters as though they were written by Greenspan himself.
Ben Bernanke is a different animal entirely. Working with the
state of opaque communications left by Greenspan, Bernanke has embarked on a new
experiment: transparency. In addition to speeding up the release of FOMC meeting
minutes, appearing on 60 Minutes twice, and allowing some dust to
gather on the Fed's thesaurus, Bernanke embarked on a great experiment last
week: a press conference.
Not only that, the way the press conference was conducted —
with just 15 minutes of prepared remarks followed by 45 minutes of Q&A — he
left himself wide open for a potential gaffe or two.
And that may have happened.
Early in the questioning, Bernanke was asked to define the
phrase "extended period" and in his reply, he stated, "Extended period suggests
that there would be a couple of meetings before - before action..."
So, we now know that once the "extended period" language is
dropped, we have just two meetings, or about three months, until "action" will
take place (now, we can debate what the word "action" means, I guess). It's hard
to overstate the amount of energy and analysis that has been put into
determining the meaning of these two words. A Google search of "extended period"
returned over 28 million hits, whereas the more widely used phrase "long period"
only returned 12 million.
Whether this was an actual slip of the tongue or a carefully
orchestrated placement of information, we'll never know. But either way, I
believe Bernanke is happy. Greater transparency necessarily includes the risk of
exposing information that you wouldn't otherwise share. If the Fed has been
using a "two meeting test" for retaining this language in the last 18 FOMC
meetings, it's good that everyone now knows it.
* Yes, sometimes I think of spending money on
entertainment in terms of Net Present Value. To my wife's great confusion, I am
often attempting to discern the peak of our combined utility curves for such
activities as choice of vacation, how to spend a Saturday, and even where to go
to dinner. She is one lucky woman!
The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or SVB Asset Management, or any of its affiliates. This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.
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