Essentially, I'm pleased with how Mr. Bernanke has led the Fed and signaled the markets. Rock solid success on analytics and persistent on key issues. He's actually a better signaler than politician - all signals not coming from Congressional testimony. He's practically given direction, at least for the personal financial services sector, at least three times since on the job. Anyone who has paid attention knows how to better prepare their clients in enterprise and students in education for the road ahead.

Personally, I think that it takes some time to get used to the signalling style of any Fed Chair. The markets are used to a specific type of signal and now it receives one (just as informative) however different. Nonetheless, time is the best test to see consistency in effectiveness.

posted August 8, 2007

Lots of luck, Mr. Bernanke . . . and anyone else who is so presumptuous to believe that the business cycle (and with it cycles in inflation, interest rates, commodity prices, employment, etc.) are forever banished from the world and U.S. economies. The Fed under Greenspan and now Bernanke have done a marvelous job moderating the excesses and maintaining the economic expansion . . . and perhaps they will continue to do so for some time to come. But the day will come when when excesses become self-corrective and economic/market psychology overwhelms the Fed's tools and abilities. What's more, we live in an very interconnected world -- and overseas (in China, Latin America, Japan, Western Europe, Russia, etc.) there is much potential for excesses, panics, and shifting psychology to quickly affect the U.S. economy and financial markets . . . and let's not forget the possibility of a major disruption in the flow of oil from one or another major producer.

posted August 8, 2007

Do I have faith in Bernanke, that the policies are right... yes
Do I have faith in the markets, that they'll stay strong... no

Put simply,
1. Equities are overvalued. This is typical in the high point of a cycle. Earnings at these levels are not sustainable, and yet PE multiples haven't really been compressed (I think some may even have expanded).
2. When equities are overvalued, "household wealth" is overvalued. People feel richer than they really are and spend too much.
3. Overspending drives profits up, inflating stock prices.
4. Secondary factors play into the puzzle including higher inflation rates which cause profits to be artificially overstated (academics see Baxter's 1955 article "The Accountant's Contribution to the Business Cycle)

Eventually, reality will settle in, markets will correct, and perceived household wealth will fall.

===

Then there are other economic factors in play:

Higher worldwide interest rates means that the value of capital (physical capital) invested elsewhere is on the rise. Consequently, a greater fraction of the world's resources (particularly the easily or often-shipped resources like oil and steel) are being invested in these emerging markets (and even Europe) relative to the periods of low worldwide rates.

As the fraction of new captial invested elsewhere increases (and the fraction in the US falls), the productivity (earnings) growth of a US worker will slow. This will also put negative pressure on US markets.

===

Ok so should Bernanke be cutting rates to defend our stock prices and wages? ABSOLUTELY NOT! because it wouldn't help over the long run.

While Bernanke might delay the correction, it will eventually strike. The more Bernanke does to defer this day, the harder it will hit.

Indeed, weakness in housing markets have actually helped moderate the pressures. Overvalued equities are being offset by undervalued housing in the national accounting of wealth. This is causing less "overspending" and less subsequent equity inflation. At the moment, prospects are realtively good for a mild correction due to the early housing shift and the prospects for continued strength in capital exports (see point 2).

===

So Bernanke's world will be rougher than Greenspan's world but it has nothing to do with the policies of the Fed Chairmen. Greenspan had extremely low international rates, driving capital into the US, and supporting productivity.

Bernanke faces rising captial costs and the implicit slowing of productivity growth. The economic deck is stacked against Bernanke but his resolve in maintaining low inflation via high rates (despite the negative prospects on equity markets) is actually the correct way to ensure that the recession (correction) comes earlier and is milder.

===

Obviously, I am not a professional investor, this is strictly my opinion, and nothing herein should be considered or construed as investment advice.

posted August 8, 2007

Greenspan is given a serious pass on some big mistakes (irrational exuberance, anyone?), while Bernanke is punished for being short-lived on the job, in the absence of any false moves so far.

What kills me is how we somehow now have two Central Bankers. The guy with the job and the guy who gives speeches at fat-cat dinners where he speculates and it's taken as gospel. Only one of them has a vote. Watch Bernanke and ignore Greenspan.

There's a common problem in developing countries best described as a cult of personality. People get elected because of who they are, not what they do. One of the great strengths of democracy, and of democratic capitalism, is that change is regular, expected and no big deal. Can you name the heads of the five biggest banks right now? The give biggest industries? It doesn't matter. They perform or hit the door.

In Greenspan we have the ultimate cult of personality. He was a good Fed chief, perhaps even a great one, but not irreplaceable. Falling in love with certainty, even certainty with bumps in the road, only feeds that cult and, eventually, it bites you hard on the butt.

posted August 8, 2007

I favor Bernanke over Greenspan already.

As stated by several other good folks here, Bernanke is far more transparent Chairman than Greenspan, who went from quoting prices of hot-rolled steel to missives on the yield curve without batting an eye (and remaining so very, very incomprehensible at times)

Bernanke is telling everyone that he is an implicit inflation targeter and that the focus of the Fed's decision making process is now shifting TO headline FROM core inflation. This shift (as pointed out previously) gives great deference to energy prices and other components of headline. Price stability still rules the day, and asset prices alone will not determine his next move.

The fact that "everyone" knows this (which, of course, does not prevent certain large investment banks from attempting to convince the public otherwise in order to dump their propiretary positions onto same...) is a sea-change for good when compared to Bernanke's predecessor.

I have faith in Bernanke's analysis and the transparency of mechanisms that form his analytical process...the OUTCOME is irrelevent. Bernanke is better. .

posted August 9, 2007

I don’t believe that this is necessarily the start of a recession. Certainly the odds of one are rising, but many indicators of US and global economic growth remain intact. In fact, the Fed has a bit of a problem in determining how best to deal with the present credit crisis. Lowering interest rates, as many have called for, would add to inflationary pressures and could lead to a further drastic weakening of the dollar, reaching lows of perhaps 110 Yen or 0.5 Euros, with adverse implications for an already enormous trade deficit. The Fed’s preferred solution, injecting substantial liquidity, at least avoids the headline risk that a rate cut would entail; but the end result will probably be much the same. In other words, the problems we face aren’t easy for any Fed Chairman to deal with and Benanke is making the best of some difficult choices.

posted August 11, 2007

I have been in Banking for 16 years and think that Bernanke and Greenspan are from the same tree. Both focused on controlling inflation which protects their core constituencies. Mr. Bernanke is much more focused on being transparent to the Financial Markets and is not as worried about the individual investor.

Mr. Greenespan took many years to develop his reputation as a seer. So lets give Bernanke a chance to grow in the position. I think Congress could help with the sub-prime and the illiquidity within the markets by changing the regulations with Fannie Mae and Freddie Mac. The SEC should be looking at the Markets to determine what they can do to "level" much of the liquidity challenges.

posted August 13, 2007

I think Greenspan has the "brand identity" that is synonymous with Economics, and certainly he was great at his job... Let's hope his successor is as savvy at calling the markets... ;)

Links:

• http://www.mindtaffy.com
• http://www.Acrobat-3D.com

posted August 8, 2007

As others have said, I think Bernanke is fine... Just as some say the tech bubble was building on Greenspan's watch, a housing bubble seems to have emerged under Bernanke -- but neither criticism strikes me as fair to lay entirely at their feet.

posted August 8, 2007

In my view the fed has little true impact on global economic factors.
I don't hink Greenspan had as much impact on the economy as Enron's fiasco.

If anything the Fed seems to be tail trying to wag the dog.

In my humble non economist view, the biggest factor is energy costs.

If energy costs go up, products go up, inflation goes up.

When energy costs go down or stabilize, prices stablize and there is no inflation.

If you factor out the drop in housing prices, consumers are spending a bunch more on gas, home utilities, dairy products, meat, etc. There is definitely an inflationary bubble that has nothing to do with lending rates.

Again in my humble opinion..........

posted August 8, 2007

Well greg, as you said , arguably.
I guess Oliver Cromwell made a statement in favour of Parliaments beheading an English King in 1649...and all looks like connected, as the Puritans prosecution after the return in power of the royalists, originated a chain of events that led the good citizens of Boston to dump 10 tons of good tea in the harbour...some time later.
Cheers

posted August 8, 2007

Where Greenspan was a cipher, Bernanke is a signaler. No more tales from the cryptic, whew...

That the former seems more adept while the latter more inept in front of the cameras or schmoozing on the Hill is a function of priorities: the new guy's doing his homework,actual paying deeper attention to a wider range of data, and seems to be a quick study and a good listener.

posted August 8, 2007

Mr. Greenspan is responsible for the mortgage crisis...No reason to miss him. If Barnanke is any better, time will tell.

posted August 9, 2007

Greenspan had developed an instinct for the markets that, together with his language and our cult for him, made him look larger than life. In fact, one could point to several directions he took the fiscal policy that were politically motivated. From his earlier time, recall the decision not to lower rates for Bush 41st. He paid back to the Bushies though when he offset the .com bubble with the housing bubble.

Bernake will either give us another bubble or will have to manage our paying the price for Greenspan's exuberance.

At a different level, considering the world of the investment professionals, it's obvious why Greenspan is that much better. However, in the face of the laws of economics, Greenspan failed big time. Bernake still has the chance of his professional life ahead of him as the subprime story unfolds.

posted August 10, 2007

Bernanke or Greenspan can only tweak the monetary levers. They cannot do much about the deficits being run by the government or trade or for that matter about the competitiveness of US vis-avis other nations where the root causes of all the symptoms of the current volatility may lie.

When you print too much money, the liquidity in the system goes up, with foreigners financing your debt, the cost of money does not rise and banks are induced to lend to sub prime borrowers who leverage rising asset prices in that sector. This spiral feeds itself till there are no more borrowers and then a crash starts to happen.

There is little that Greenspan could have done about this and smae is true for Bernanke. The trick lies in raising productivity and reducing government expenditure specially for adventures in the middle east.

sanjay9negi@hotmail.com

posted August 12, 2007

Hi Kam,

given your position as hedge fund manager, shure you miss Greenspan. Cheap money (=low intrest) did wonders for the economy under Greenspan, guess you didn't mind those levels ;-)

But you know what's comming, FOMC policy won't be decided in DC, the point of gravity will shift to Bejing. They're massive sufficient capital to forcefully act on the markets, overpowering the intrest instrument of Bernanke and/or Greenspan.

BTW, how's your Mandarin?

greetz Mykel

posted August 12, 2007