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TheStreet Open House

Newest Fed Speak Suggests Web ETFs

NEW YORK ( ETF Expert) -- During Alan Greenspan's tenure at the helm of the Federal Reserve (1987-2006), the investment community created a phrase to capture the former chairman's wordiness. "Fed Speak" aptly described the long-winded ambiguity in his statements. In fact, it is likely that Greenspan was intentionally vague to reduce extreme price swings in the stock market.

In 2013, the new sheriff offers citizens a different kind of Fed Speak. Chairman Ben Bernanke has been remarkably straightforward with his plan to print dollars to buy U.S. sovereign debt. Not unlike his European counterpart's infamous promise to do whatever it takes to protect the euro, Bernanke's Fed will purchase government bonds until unemployment reaches 6.5%.

In spite of an infinitely more direct approach, Bernanke has explained that the Fed reserves the right to increase or decrease the pace of bond purchases. More recently, there has even been speculation that the Fed would stop printing money sooner and/or change the unemployment target to 7.0%. It follows that, in the quest to be more transparent, Fed Speak is as maddening as ever. Investors do not know what the Fed will actually do because they themselves reserve the right to change on the fly. (The positive spin for the right to change one's mind is called, "flexibility.")

However, realists recognize that the Fed's extreme policy measures have been more successful at creating an artificial wealth effect than creating jobs or stimulating the economy. The labor force participation rate is bleak, wage growth is non-existent and corporate revenue gains have been anemic. Would home prices be soaring and riskier assets be surging were it not for ultra-low interest rates? Ultra-low rates push people to do things that they normally would not. In fact, if the Fed stopped its quantitative easing program tomorrow, housing would buckle and stocks would collapse.

In essence, Fed Speak may be explicitly communicating that there are a wide variety of possibilities with respect to central bank direction. On the other hand, Fed Speak implicitly communicates that the only option is to continue for years and years and years.

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