Believe it or not, someone other than Alan Greenspan is actually enjoying the former
chairman's book tour.
Even more incredibly, that person is Greenspan's successor, Ben Bernanke.
Last week it seemed outrageous and narcissistic that Greenspan would choose this week to unveil his new book. Monday's heavily hyped release of
The Age of Turbulence
comes just a day before Bernanke is due to announce one of the most closely watched -- and pre-emptively criticized -- monetary policy moves in memory.
"They could not do anything tomorrow that will make us happy," says Art Hogan, chief market analyst at Jefferies & Co.
But as Tuesday's Federal Open Market Committee meeting looms, and Bernanke prepares to reveal what may be a very unpopular decision, it turns out Greenspan is acting as a bit of a flak jacket for his successor.
By appearing serially in newspapers, magazines and Web sites as well as on television over the weekend, Greenspan aroused critics who say he is responsible for inflating the housing bubble by keeping interest rates too low for too long earlier this decade.
Greenspan chose his answers carefully and recoiled from accepting blame for the housing mess. But merely by taking the question so frequently, he deflected some of the vitriol from the current chairman.
Along those lines, Greenspan's remark that inflation is the key threat to economic stability can hardly hurt Bernanke's cause.
It's not a bad public relations plan for all involved. Greenspan sells books. Bernanke takes some cover if he doesn't capitulate to market calls for massive rate cuts.
Analysts and economists, after all, are all over the map as to what the Federal Reserve might do Tuesday.
Those concerned about a broad-based recession in the wake of a dramatic housing slump believe the Fed might cut by 50 basis points from the current fed funds rate of 5.25%, in a bid to get out ahead of a deeper slowdown. They say there's evidence of an economic breakdown in August's report of job declines and last Friday's weak retail sales report. This summer's declines in financial stocks ranging from
underline the seeming timeliness of this case.
Others believe that the Fed is only reluctantly responding to Wall Street's call for rate cuts, and that the central bank remains concerned that inflation is the key threat to the economy.
Bernanke and other Fed committee members have not abandoned their rhetoric that inflation remains of concern, and for good reason.
Asset classes that respond to excess liquidity in the financial system are not backing off despite a seizure in the markets for short-term capital. Commodities indices are soaring to make new highs as the dollar slips in the face of lower interest rates. Oil remains over $80 per barrel, and natural gas gained almost 6% Monday. Gold is approaching its multidecade high of $725, finishing up Monday at $717 per ounce.
While so many investors fret about recession, "the monkey on your back is the one you don't see," says Michael Darda, chief economist at MKM Partners, referring to inflation worries.
Indeed, some stock market investors are taking the contrarian view that with the consensus pricing in so much disappointment, stocks are more likely upward-bound.
"Mr. Market tells me we're not at the front end of an economic calamity," says James Paulsen, chief investment strategist at Wells Capital Management, questioning the notion that the stock market is pricing in recession or several rate cuts. He notes that the
is within 5% of its all-time high, while emerging-market stocks haven't fallen dramatically. Likewise, U.S. stocks are currently led by extremely economically sensitive sectors such as technology, basic materials and industrials.
"Where in that is the call for crisis and an ease?" says Paulsen, reiterating that he'd rather listen to the market than to Wall Street's rhetoric.
Meanwhile, in other very essential Fed-related news, the board of governors redesigned its Web site to be "more effective and user-friendly." That'll surely take the edge off tomorrow's big decision, too.
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In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click
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