Assistant State Treasurer
Chief Investment Officer
State of Louisiana
Department of the Treasury
From: DAVID ZERVOS (JEFFERIES & CO. (INC) [mailto:firstname.lastname@example.org]
Sent: Wednesday, March 28, 2012 7:54 AM
Subject: If Joe Perry can get straight, then really, anybody can....
Recently, Bernanke has been blasting the airwaves with "transparent" policy talk. The lectures at GW - http://www.ustream.tv/federalreserve, the interview with Diane Sawyer -
http://abcnews.go.com/Business/transcript-diane-sawyer-interviews-federal-reserve-chairman-ben/story?id=16012043&page=6, and the series of well timed, high profile, press "leaks" have all been part of an aggressive campaign to justify past Fed action, and lay the groundwork for possible future Fed action. This has been the largest information blitzkrieg from the Federal Reserve that I can ever remember. And with all the good economic news recently, it hardly seems that this is a defensive measure; rather it seems like the institution has gone on a full fledged (politically motivated?) offensive strike. So what are the key policy takeaways from this blast of transparent information -
1. The labor markets are still crap and recent improvements are likely to stall 2. Cyclical rather than structural factors are at the root of the substantial increase in unemployment 3. Accommodative policies are necessary to ensure that a cyclical unemployment problem does not become a structural one 4. High gas prices are annoying but will not endanger the recovery 5. Housing is still a drag, but it will come back eventually when a full economic recovery takes hold
Ben's full frontal attack via university classrooms, TV and newspapers represents an aggressive PR move from an institution that has rarely been so forthright. This maneuver can only mean one thing - there is a very itchy trigger finger on the Bazooka. There will be no 1930s style mistakes on Ben's watch - thats the real message. Whichever PR firm it was behind the scenes that designed this marketing campaign for the "Bernanke Put" has done a top notch job. I'm sold….go spoos!!
In addition, when it comes to unwinding the balance sheet and dealing with future inflation risks, I thought this exchange with Diane was highly illuminating -
DIANE SAWYER: You said at one point in an-- in a 60 Minutes interview awhile back that you felt you could control it 100%.
CHAIRMAN BERNANKE: No, I didn't say that. What I-- the question was-- did we have confidence in the tools that we have to unwind the large balance sheet increases for example that we've done. And-- and I-- I do have 100% confidence that when the time comes to unwind-- the actions we've taken-- that we would be able to do that. Now, keeping inflation low and stable is gonna require more than just the technical tools. It's gonna require making a judgment about how much support the economy needs and when is the right time to begin withdrawing that support. And that's a problem that central bankers always face whether you're in a situation of non-standard tools or-- or normal monetary policy tools. So-- no, I'm not guaranteeing that the inflation will be exactly on target, but we're gonna do our very, very best to make sure it is.
And what are the takeaways here -
1. Ben is sure he can sell assets and drain reserves 2. Ben is not sure he will have the stones to quit the nasty habit of using inflation to solve our debt problems when the time comes. He'll try real hard, but there are no guarantees.
At least he is honest. He is going to try his best to stop using balance sheet crack when the time is right, but there is no foolproof method to ensure the addiction will cease. At least, however, there is a glimmer of hope. As Steven Tyler of Aerosmith once said - "If Joe Perry can get straight, then really, anybody can". Ben may need a few years at the Priory, and he may have to spend a few years beforehand looking and acting like Joe Perry in the 1970s, but in the end, chances are he comes out the other side still rockin'. Good luck trading.
Upcoming Travel Schedule -
April 9-11: Atlanta
April 23-27: Middle East TBA
April 28-May 3: Los Angles
May 9: Hartford
May 10-11: Las Vegas
May 14: New Orleans
Global Fixed Income Strategy
Jefferies & Co