Investors deserve a little sympathy over their confusion about world events and microeconomic factoids which do a better job of confusing our sense of equilibrium than creating it. Armchair analysts and professional critics alike have less than a 50/50 chance of “getting it right” when even the experts seem oblivious to the outcome of their pronouncements. A technological revolution, which is supposed to make our lives easier, was part of a three hour “market glitch” last week. Hardly the stuff which engenders client confidence and solemnity.
It is with no surprise, then,
that the Federal Reserve continues to put its foot in its mouth by playing
around with an ambiguous notion that it “may or may not” allow interest rates
to creep up without its (the Fed’s) steady hand on the rudder. While
they may indeed be justified in their ultimate objective, the outcry of disdain
and confusion their “leaking” of this tactic creates has greater impact upon
the economy than the policy itself. While
a certain percentage of economists favor economic “easing” (and some others
might not), I believe they should just keep quiet or be less ambiguous about
something as amorphous as stimulation and interest rates.
Talking about something and
doing it are two distinct things. While
it is great fodder for discussion, and instrumental in helping investors plan
for the future, it is silly to suggest that “inference” is a policy. Besides, there are macro secular forces at
work here that lie well outside the domain of monetary policy.
For example, as the population
grows older investment criteria change, not only for households but for
government as well. The Fed might not admit it, but stimulus borne from low interest rates
is not the same thing as stimulus engendered by a healthy robust economy. What we seek, in fact, is inflation, not the kind which ravages economies in
underdeveloped nations but the kind which raises prices, production, demand,
wages, and people’s hope for a better, more vibrant, standard of living. Interest rates will be rising over time,
irrespective of the Fed.
For the most part investors
are tired of inference and suggestions, instead seeking real solutions, real
growth.
Failure to launch.
With nominal interest rates at
or near zero it is harder to drive the economy into vigorous “inflation-type”
growth, and harder still to create savings and capital reserves…unless you’re
already wealthy and rife with cash, in which case you are now part of the
problem. If you “believed” enough in the future, at this point you would have
deployed your excess reserves towards hiring, production, and product
development. For the most part, and
acknowledging the exceptions, this is rarely being done right now. Hence, the markets sit, stupefied by their
inertia.
Obviously, as noted above, the
key to stimulus is belief. There is a remarkable emotional and
mathematical symmetry when economic facts meld with personal expectations to
create a desired result. That policy,
that belief, is not sufficiently present today to drive the markets, and the
economy, beyond a 24 hour news cycle dictated by announcements rather than
sustainable policy.
Instead, policy makers have an
asymmetric view of the problem and
its solution. To be sure, they have at
their disposal a host of tools to deal with the issues, but choose not to do so
at present. In fact rather than err on
the “right side” or “wrong side” of policy, they err through omission
altogether. Right now, my data
almost “seizes” at the lack of momentum accorded to cyclical phenomena.
And yet, data is
everywhere. Local, regional, and global
events continue to happen, every day.
These events themselves become cycles and patterns. Great things are
being done by citizens, doctors, researchers, lawyers, policemen, firemen, professionals
in all endeavors every day, every hour.
Our leaders, however, have
failed to create a landscape, a “hope-zone”, in which these great acts can be
fulfilled.
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