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Another Theory on the Sage, by Roger Arnold
Has the Sage ever discussed:
It was evident about six months ago that there was something wrong with Ariel Sharon. Even a casual observer of Israeli politics would have noticed his abrupt change of stance with respect to the Palestinians; almost schizophrenic.
Is the Sage beginning to show signs of disorientation?
He increasingly sounds like a college coed, ivory tower professor or religious end-timer, spouting off about some personal, kumbaya, political or social belief without consideration of practicality or logic.
I have learned over the years of watching the Sage that he sees every other being or organization on the planet as some cardboard cutout or pawn, a means to a personal goal, and nothing more.
His born-again style pontificating about the dollar and US policy is very suspect
Assuming he still has his faculties intact, I must assume he is either concerned about mishedging at his conglomerate, or has succumbed to political pressure to take his current stance publicly as a quid pro quo for the government's not pursuing the nefarious maneuvers of his insurance operations.
Not a conspiracy theory; just a thought.
What a Card! by Victor Niederhoffer
The Sage of Nebraska gave an 11-page talk to the students of the Harvard Business School (HBS) on December 22, 2005. It contains one untested, detrimental, or loaded, partial but misleading truth and shibboleth after another. The highlight occurs when he starts off by telling how the secret of his success is buying great companies like Nebraska Furniture Mart, and See's Candy. You would have thought that one of the professors or students would ask him what the rate of return on these companies might have been, or how a company that produces or retails a product in a declining market segment in a declining region in the most competitive of all businesses could have an above average rate of return going forward, but no.
The audience eats up such sayings as "take care of thy shop and it will take care of thee" and "We've bought business after business like the Mart" and "Reading Ben Graham's book The Intelligent Investor is the most important attribute that has contributed to my success" and "There is a very high probability that a major nuclear biological or chemical incident will happen somewhere," and "Markets everywhere follow three stages--- innovators, imitators, and swarming incompetents (that's where the hedge funds are now)" and "Find people you like and are capable, and things will work out" and "Look for businesses that an idiot can run."
And they loved the Sage's explanation of why Berkshire can do so well: it buys businesses and leave the owners alone, and he never buys a business at auction, and two of the five businesses he bought last year had higher bids from private equity shops, but Berkshire has the an advantage in buying from people who don't want to auction off their business, and how he met FlightSafety for a hamburger and cherry coke at Skadden's offices and reached a deal in about an hour. "You see, Al believes in producing safer pilots."
There were dozens of these statements contained in the lecture and you would think that a professor there would have said, "Hundreds of other conglomerates have said that the key to their success is that they leave the companies alone. And can you really make money by buying a business that an idiot can run or is it doing something so repetitive that it doesn't have to worry about competition and aren't these factors taken into consideration in the price? More importantly, Mr. Sage, doesn't everything that we teach our students here say that our economy is very competitive, and it's becoming even more competitive with increasing free trade and free enterprise around the world and aren't the businesses that any idiot can run that do humdrum things within everyone's sphere of competence, the ones that are guaranteed to have the most competition, with the rate of return on them being driven down to the risk free rate? Isn't that the lesson that Charlie taught you? Are the returns on the humdrum businesses you bought taking every thing into consideration before your credits with and deferrals from the Service so different from the risk free rate of return? And, doesn't every seller tell you that they're taking less money to sell out to you than they could with someone else just to get you to raise the price?"
(Ninety-nine percent of the thousands of companies that I sold or tried to sell during my 25 years in the merger business were instructed to use this tried and true mantra of the old maid. )
But what really is the key, the one thing that confirms my theory that the Sage is the old snarling lion fighting to keep the younger ones from mating, is the frequent use of the sexual allusion. Here are two samples after his staple, "It always seems there's one dance left." The sage "used to go to sleep counting legs but now he doesn't do it any more because it's not so good for sleep" and "the Wall Street analyst said we could save money by your cooking so we could fire the cook, and the wife said we could save money if you learned to make love and we could fire the gardener."
What naive patsies they must have at HBS to let all these untested and anti-economic theoretic statements go without challenge? Worse yet, because Warren is so tight, and he has a great savings succession plan with his charitable foundation, there is probably very little chance that the school will get a major donor gift from him. All in all, a very dismal moment in the history of investments and the integrity of the academic environment.
But it's an ill wind that blows no good, as the chronic bear would say. The fact that people like the Sage and the Chronic and the other abelflecprudsortles exist and spread the damaging message that has the world in its grip through their second-hand levelers in the wholesaling-of-info game does open up some nice niches for those who believe in enterprise, can count, or read the work of the Triumphal Trio, or those of my colleagues above.
Stefan Jovanovich remarks:
Whatever J.P. Morgan Sr.'s faults, he was never "doddering" and the response to his remarks about "character" before the Zagora committee were anything but approving. No one believed him. Morgan's own opinions about Jews were equally puzzling to his contemporaries on Wall Street. In an age where Gentiles' attitudes ranged from wariness at best to outright paranoia, Morgan, Sr. had no fear of Jews - either privately or in business. Many of his art dealers and "scouts" were Jews, and there is no record of his having ever said anything anti-Semitic. His firm did not hire Jews, but they also did not hire Baptists or Catholics. As for the Ivy League, Morgan, Sr. was a skeptic, not a believer. He thought Harvard had made his son into something of a prig, and Yale was not one of his charities. (I have to check, but I do not think that the college is mentioned in his will.)
The Sage of Omaha is a genius. So was Colonel Parker. Buffett knows that Berkshire's valuation is not sustainable, if measured by "mere" financial criteria, so he is busily creating a legacy that makes his company into the ultimate "social responsibility" investment. Selling the Berkshire Hathaway stock will become as unthinkable as doubting the wisdom of the Kyoto Protocol (or whatever its successor will be in virtuous certainties about our sinful world). If you want to become the Saint of Omaha, that is the only way to go; and that is the road that the Buffett carnival show has been traveling for the past decade. Reading from Graham and Dodd, the "bible" of investing, is part of the act. It is truly a masterful performance.
Prof. Gordon Haave comments:
Ultimately, HBS is a business. The business depends on customer satisfaction:
1. Good job placement after graduation, and, less importantly:
2. Being able to instill in the students a sense of superiority
Harvard is aided in both #1 and #2 by a long history of success (or at least perceived success). However, the top 5-10 business schools are in fierce competition to get the top ranking in U.S. News and World Report. Thus, on the margin, #1 and #2 are very important vis-a-vis competition with Stanford, Wharton, Columbia, etc.
What is the last thing that a smart business manager would do in this situation? Telling the customers that the world changes every day, that the cycles are ever-changing, and that no amount of money or text-book education can guarantee success. Therefore, they all work very, very hard to get people like Buffet to come in and make them feel special, and more importantly lead them to believe that their book-smarts along with a few trite platitudes will guarantee success.
This false sense of security is self-fulfilling because self-confidence is a very important trait in hiring and promotion decisions in most industries. HBS, by allowing the "anti economic theoretic statements" to go unchallenged, is thus successfully guaranteeing the success of its business. This should come as no surprise. What is interesting is that a man of such wealth and fame would allow himself to be a part of the charade.
Ken Smith continues:
Our lives could be construed as a series of charades. Fantasy is everything for us, we humans. Harvard dwells in fantasy when books and classes are waved around like patriotic flags. For connections and prestige and background get most Harvard grads into top entry positions in American corporations and in U.S. bureaucracies. It has little to do with academic symbols and meanings.
A brother-in-law played football as a star running back for the University of Washington. Of course Harvard wanted him. The prestige of Harvard Law School got him a slot in a notable legal firm as soon as he graduated. Of course, he had brights too, not to diminish his intellectual credibility. However, hundreds of Harvard students have brights, but they don't have star-level football history.
Dan Grossman adds
I admire the Chair's energy and feistiness in still going after the Sage. Do you have the accurate cite for the HBS reviews of his speech because I would love to look at them.
I can't imagine what it is in Graham's book that he still thumbs through and finds relevant in this day and age.
On the other hand, the Sage at HBS is sort of a ceremonial appearance like Eleanor Roosevelt visiting Quincy House when we were there. If the Sage really had some treasured technique, such as running the cash flow of See's or Furniture Mart through the insurance companies so that under foreign controlled tax regulations he could avoid taxes forever, then that is the last thing he would talk about.
It's sort of like the doddering JP Morgan saying you didn't need to look at financials, the most important thing in lending to someone was his character, (meaning probably that the borrower went to Yale and wasn't Jewish or anything), and everyone nodding and saying 'how brilliant'.
Oil in China, by Mr. Ckin
The Sage et al., if they had a pitch book, would include their Petrochina trade in it. They have been highlighting their purchase as a prime example of value investing in action.
Roger Arnold on Berkshire Hathaway:
Berkshire Hathaway and all of its financial industry subsidiaries are now being investigated for concerns from simple "accounting irregularities" to specific fraud by numerous countries and US states, including Australia, Germany, Canada, Ireland, UK, New York, Virginia, and Tennessee. What started out as an Australian investigation ~ 4 years ago into the collapse of FAI continues to grow, with all of the investigations increasingly being linked.
I don't know what to make of it as investors don't seem to care and the financial media doesn't report it. Is it simply piling on by bureaucrats or is there something to be concerned about?
Even as it grows the Sage appears to be in the calm of the eye of the storm as an increasing number of his employees and even protoges have their careers extinguished.
Give the Man Credit, by George Zachar
As demonstrated by the National Journal item from Friday, the Sage has successfully positioned himself as the press's perfect businessman: honest and folksy and altruistic and not at all puttin' on airs.
What's the difference between the Sage's enormous tax code arbitrage and the Loch Ness Monster?
-- The latter is sometimes mentioned in the press.
What's the difference between the Sage's ownership of one fifth of the Washington Post and the Protocols of the Elders of Zion?
-- The latter is sometimes cited, albeit soto voce, by nutters. The former is subject to a total journalistic omerta.
Give the man credit. He's successfully ingratiated himself with his "natural enemies" - the soak-the-rich crowd - while turning the machinery of the modern State to his advantage.
The Sage: 'Your Other Own Man,' from George Zachar
Here is a transcript of Sage's recent appearance on Lou Dobbs' CNN show. (Scroll down)
He hits all the right talking points: raising Social Security taxes AND means testing, explicit class warfare, expanding the estate tax...even creating a new system of import certificates to control the trade deficit.
All in all, a "your own man" tour de force.
'Your Own Man': Textbook Example, by George Zachar
Socialist Berkeley prof and former Clintonite Brad DeLong showcases Sage & Co's anti property rights broadside:
"The Republicans are out of their cotton-picking minds on this issue," said Munger, a self-described right-wing Republican. Social Security is "one of the most successful things that the government has ever done."
DeLong's blog is one of the most popular lefty/academic/econ sites.
[Editor's note: Read an analysis of SSI by aerospace systems analyst William Haynes]
2 Valuable Things, by Victor Niederhoffer
What I learned from the Sage.
Buffett's Last Stand
The query was made: How could someone on one side of a transaction be seemingly guilty of violations of accounting and other standards while at the same time the other side was in the dark concerning its purpose whether "briefed " or not? The following is one possible explanation, offered by Yishen Kuik.
Is this an accounting question or a mathematical one?
If the question is whether numbers around a transaction sum to zero, then I suppose the question is whether the double entry system of accounting is robust across corporate entities, i.e., does GAAP capture the flow of "boxes and arrows" across all parties.
Might the answer be that there are key structural weakness that allows accounting "black holes" such that the numbers do not always sum to zero.
Two situations that might give rise to such black holes are
1) borders are crossed in the transaction and accounting standards do not necessarily line up neatly across borders, thereby taking advantage of the cover and concealment from greater effort necessary to uncover oddities in a transaction across two accounting regimes
2) the transaction involves GAAP insensitive entities, which absorb the bad odors of the transaction, usually in exchange for a share of economics. Balance sheet liposuction of unwanted asset/liabilities by using 3% equity partners
Jan. 19, 2005
Buffett Says Dollar to Decline Further Amid Trade Gap
(Adds details on Spitzer investigation in 12th paragraph.)
By David Plumb
Jan. 19 (Bloomberg) -- Warren Buffett, the billionaire
investor who has bet against the U.S. dollar since 2002, said the
country's trade gap will further weaken the currency.
``Unless we have a major change in trade policies, I don't
see how the dollar avoids going down,'' Buffett, 74, said in an
interview with CNBC today. ``I don't have any idea if it's going
to be this month, next month or next year.''
The forecast suggests Buffett, who runs Berkshire Hathaway
Inc., is still wagering against the currency. Omaha, Nebraska-
based Berkshire earned $412 million in the third quarter on $20
billion of foreign currency contracts.
Buffett also said he's having a ``hard time'' finding stocks
to buy and isn't purchasing commodities. Berkshire's cash swelled
to $43 billion in the third quarter because he couldn't find many
Berkshire, which has subsidiaries selling insurance,
carpets, mobile homes and business jets, may look outside the
U.S. for investments, Buffett said. A weakening dollar threat
to accelerate inflation, he said.
``I certainly welcome the chance to buy businesses, or f
that matter stocks denominated in other currencies or busines
that make their money in other currencies,'' Buffett said. ``
would be a small plus to be in a half a dozen other countries
versus earning money in the dollar.''
Berkshire's A shares rose $295 to $86,895 in New York St
Exchange composite trading. They rose 4.3 percent last year,
compared with a 13 percent gain in the exchange's composite
The dollar fell 21 percent against a basket of six major
currencies between 2002 and 2004 as the country imported more
than it exported and the government sold bonds to foreign
investors to fund part of its budget deficit.
It has risen 3.4 percent this month on expectations U.S.
economic growth will outpace Europe's expansion and the U.S.
Federal Reserve will raise interest rates.
``We are force-feeding dollars onto the rest of world at the
rate of close to a couple billion dollars a day,'' Buffett said.
``That's going to weigh on the dollar.''
Buffett also said Berkshire's law firm is conducting an
investigation of the company's reinsurance policies after
receiving inquiries from New York Attorney General Eliot Spitzer
and the Securities and Exchange Commission.
Spitzer and the SEC are investigating whether insurance
companies, including units of Berkshire, may have sold policies
that allowed corporate clients to mask losses. The coverage,
known as non-traditional or finite insurance, can often act as a
disguised loan, regulators said. At least seven insurers have
``It's an industry-wide investigation,'' Buffett said.
May 7, 2004
"Berkshire is also expanding a type of insurance in which individuals cash in their life insurance policies before they die. For example, Berkshire and a partner paid a 79 yr. old woman this year 10 million for the rite to collect her 75 million life insurance policy upon her death, buffet said " .... Bloomberg 5/7 reporting on his annual meeting. . This seems to me like something from Don Quixote, where the hero of the story was too smart by half, like the amour who didn't trust his girlfriend so asked his boyfriend to try to seduce his girl so that he could see if she was faithful and it turned out that the boyfriend and the girl friend fell in love, and then tried to kill the original amour. Sort of like his friendship with Gates and his 18 billion bet against the dollar.
P.S. We have the strongest company in the world in reinsurance , by some margin" Buffet said.
P.P.S. Full disclosure: Vic has his largest short individual stock position ever in Berkshire. -- Victor Niederhoffer
One of the hardest matches I play, reminding me of my games against Sharif Kahn, is my continuing idee fixe that Warren Buffett is a sanctimonious scoundrel, who adopts a false folk mien, who will be victimized by adverse selection the way every other conglomerate has, whose success has come from clever use of tax losses and float, the ownership of a very good company (Geico), and whose views about the role of business and government and increased taxes in a good society would lead to ruination through reduced incentives and individual freedom if they were followed. I believe his main advice to investors, to stay out of U.S. stocks since 1997, hold onto old faithfuls, avoid the dollar and buy good companies at a bargain price, will lead to great relative loss to those who follow it. I believe him best understood now to be a clever parasite leeching into good people like Gates and the founders of Google, whose every utterance is designed to prevent younger and more productive lions from displacing him in the pack. But I find it hard to deal with articles like those in the Sunday, May 2 Times, "Berkshire Hathaway Millionaires Gather." To those he made rich, Buffett is Midas and Will Rogers. One such told the Times: "As he talked, I was convinced this guy was the smartest guy I'd ever heard speak." And the stock has outperformed the S&P in 34 of last 39 years. And the price has advanced from $178 in 1978 to $4,000 in 1978 to $25,000 in 1995 to $92,500 today. The least I can do is put my money where the mouth is and short a few. -- Victor Niederhoffer
Comment by Russ Sears
At the start of my actuarial career I helped "price" these types of "living benefits" or "viatical settlements" on life insurance. It is a bet against science and advancement. These "viatical companies" often are black or white, good or evil. They were originally the life insurance industries compassionate response to the AIDS blight. Young males, often without any dependents, suddenly going from bright long futures, handed a death sentence. A life company, with such a liability on their books, can simply estimate their present value of the death benefits based on conservative estimated new life expectancy and interest rate.
Most companies make the interest and life expectations conservative but not completely a rip-off. However, some companies view the newly traumatized as easy prey, stretching these interest assumption and life expectation well beyond usury. While legal recourse is often persuaded, this is also part of the "easy prey," as often the original beneficiary or need for the insurance no longer is alive or well enough to take this course.
Yet these things are much more complex than the Nebraskan's simple explanation. It is not clear it is the slam dunk, he implies. For example, he may be paying $5 million a year in premium to keep the policy "in force." Yet this business is his style, for the following reasons:
A recent visit to a get rich quick conference in Vegas, chaired by a
man who sparked my resignation from
the Foundation for Economic Education, displayed an amusing incongruence.
All the attendees, except for a certain two, were hard core believers in hard money, gold et
al, free markets, and the kind of thing that the great
Falstaff on our list believe in (the bullies, propriety, faith, sanctity,
America first, preemptive deterrence, media liberal bias,
economic liberty ((the confiscatory state)) et al). The exact opposite on every issue of the sage of N. Yet at each session, a groundswell from the audience would emerge. "Why the Sage is bearish on the dollar, or bearish about
US equities, or appalled by ridiculous P/Es, or sees higher interest rates as a great threat et al, AND HE'S GOT A LOT OF COMMON SENSE ,WISDOM AND
SAGACITY, AND THE MONEY TO PROVE IT , so ha, I'm bearish on the us and going to buy gold, and
European assets rite now. One felt his own superfluity at such a conference.
-- Victor Niederhoffer
George Zachar adds:
I am reminded of the classic psych studies of UFO cultists, for whom every bit of evidence was interpreted as supportive. This also speaks to the Sage's potency as a financial meme driver.
The Chairman of the Old
Speculators Association Gently Notes:
"The least I can do is put my money where the mouth is and short a few." -- VN, 5/5/04, Berkshire B shares priced at $3,080.
"I will short the stock in your honor tomorrow." -- VN, 3/12/03, in a running correspondence with CNBC Money Editor Mark Pawlosky regarding the Sage. Berkshire B shares close at $2,254.
Stocks can be hoodoos, too. Years ago I fell in love with Great Basins Petroleum, an American Exchange stock, now defunct. Generally traded around 2-1/8 to 2-3/8. After following it for 2 years I saw that it would periodically drop to 1-3/4, only to jump back to 2-3/8 several months later. It appeared to be an opportunity to pick up some free money. Only problem was every time I bought it at 1-3/4 it subsequently went down to 1-1/4 or 1-3/8 and rest there until, losing patience, I would bail (needless to say, it would begin its rebound within days of my sale).
I gave it up as a sucker's game, but continued to watch it. Sure enough, it re-established the pattern of dipping to 1-3/4 and bouncing back to 2-3/8 (or sometimes 2-5/8...oil stocks were hot at the time). So I attempted to play the game again...with the same pathetic results. A number of years later, in an example that there is a cruel version of serendipity, I came across a news item that Great Basins was being bought out for $13 a share. I never made a nickel on the stock and, in relation to my investible funds, lost substantially. Yet I still remember the stock fondly (in fact, there's a gold company named Great Basins and I've been tempted to buy it figuring, irrationally, that the name owes me something).
My assessment of GBR (for that was its symbol) wasn't
incorrect. But I wanted to be a sometime lover and not a
committed companion. Not all mistresses are capricious; some
demand nothing more than constancy. Others, like the current
equity in question, defy rational consideration and will do
in over and over again.
Deride the man if you will, but his stock may be one of those
hoodoos that will bring you down time and time again.
-- Jack Tierney, Chairman, Old Speculators Association.
Addendum from Mr. Subway:
Incidentally, I find Buffett to be pretty disingenuous when it comes to his recent comments on hedge funds as a "fad":
Not to mention that there is only 750M in hedge funds
as opposed to 8T in mutual funds (that are all
correlated to each other, unlike the hedge fund
universe) so not sure what he means really by a "fad"
(or what his protege Seth Klarman means when he says
there is a "hedge fund bubble").
The Myth of the Eternal Alpha:
Please think on this. Yesterday, we are told of a certain big-time player: " It was rumored that at one point in time, his aggregate trading volume was the largest on the NYSE." Was successful following an "eternal alpha" strategy. That is, hold the winners, even add on an sell the losers. This is of course a "momentum" strategy.
When does this give you the best return? Of course it is when prices are accelerating. Why are prices accelerating? Because a big-time buyer has stepped in. The supply and demand is now unstable, because he is buying.
Reading between the lines, I would hazard a guess that TA's or speculators mistook this "mythical alpha" for momentum, and jumped in unaware it had one big-time player and all the new "buyers" suckered in. Convinced by this phantom alpha that they have missed something, fundamental value. Then "big-time" walks away.
May I suggest that stocks do not behave this way unless tortured to do so. That for us mere mortals, a better strategy generally is more a tactical asset allocation, that is move to sectors/ markets that underperform, out of sector/markets that overperform. Common sense tells us to "rebalance" our portfolio. For alpha is not eternal. A company "true value" must have some period of underperformance, because their underlying products cannot always be more and more in demand!! Was not this the fuel that set the tech bubble on fire, that they were not susceptible to a economic cycle?
Now instead of days, turn this to years and add Buffett's name. But you tell me, how has he "suckered" enough buy side players when he walks away, to cover this liquidation in days, this momentum he has created over years and years of drying up the float. The legend will die, it will not be pretty. Though I am but a student, I would suggest that Vic maybe fighting the media again, a hopeless battle, until Buffett's literal death. -- Russell Sears.
The Sage likes to talk his positions up. And he now has $15 billion + significant adding to his bearish dollar position. But the market likes to take away money from whoever has a position one way or the other. And Buffet's reasons for being bearish the dollar, the twin deficits et al., show no understanding of economics because for every dollar of current account there is a surplus on long-term account and it's just as reasonable to say that foreigners have to finance their desired purchases of us investments because the environment so good, with selling us more goods. His position of course goes along with his acting as adviser to Kerry on increasing taxes, which could have been predicted based on my theory that old lions fractiously snarl around the outer fringes of the pack as they are displaced by more virile younger, and also by all the gratuitous anti-free market references that pepper his every utterance.
I believe that the Sage hasn't read an economics book in many years so everything he relies on is gut and native shrewdness as well as guidance from fellow travelers. All things considered, I anticipate that he will make a huge contribution to the muse of markets in this dollar position.
In line with the grotesque obsequiousness that the media treat
his every utterance it was interesting to see how they handled
the query about whether it would be better to place experienced
managers on his board rather than the son and wife. I feel a
special kinship with the son since he is chair of the company I
sold to Dekalb Foods. And two good brothers, the Zimmers, are
now gone with the wind in the beforemath. But in response to the
critique the answer was (Charlie speaking): " I know the
Buffett family. You should be so lucky to have a family like
that." Who else could get away with this?
-- Victor Niederhoffer
'It's Not His Normal Area of Competence'
(Comment from fund manager with Berkshire Hathaway shares after Warren Buffett, 73, lost $600 million in the first five weeks of the second quarter on an $18 billion bet against the dollar.)
The Sage on Taxes
"In 2003, insurer Geico was looking for a location for a new 2,500-person call center. India wasn't in the running. The firm sells expensive insurance policies over the phone, which even Americans have a hard time understanding. It helped that Warren Buffett, whose Berkshire Hathaway Inc. owns both Geico and the Buffalo News, was a Buffalo booster...Mr. Buffett says he didn't direct Geico to choose the city; Buffalo had to sell itself....After New York state came through with tax incentives and training grants, Buffalo won the competition."
At least it is now perfectly clear why the Sage, who of course is not a New York State resident, is happy to insist that others pay higher taxes.
What Fools These Mortals Be, a Cynical View by George Zachar:
Fed. Gov. Bernanke, who is on most short lists to replace Greenspan when *that* chair retires no later than Jan 31, 2006, gave a revealing speech yesterday.
Money quotes, for those who missed them:
"...by leading market participants to anticipate that changes in the policy rate will be followed by further changes in the same direction, policy gradualism may increase the ability of the Fed to affect long-term rates and thus influence economic behavior...."
"...In part because of the FOMC's communication strategy, which has linked future rate changes to the levels of inflation and resource utilization, and in part because of the gradualist policies that the FOMC has pursued in the past, markets have responded to recent data on payrolls, spending, and inflation by bringing forward a considerable amount of future policy tightening into current financial conditions. Notably, in the past few months, long-term interest rates have risen 100 basis points or more, equity markets have been subdued despite robust earnings reports, and the dollar has strengthened. These developments--the sort of "front-loading" of monetary tightening predicted by our analysis of gradualism--will reduce the financial impetus being provided to the economy and thus provide some check to nascent inflationary pressures..."
"...because of the impact of private-sector expectations about policy on current long-term rates, a significant portion of the financial adjustment associated with the tightening cycle may already be behind us."
We now have one of the half dozen or so most powerful govt economic officials *on the record* admitting he believes his job is to set asset prices...and sort of congratulating us private sector types for "getting the joke" and repricing things in line with what he deems appropriate.
As a reward, he, at the very very end, drops a hint that maybe we did such a good job, the boys and girls on Constitution Avenue won't raise the cost of capital a whole bunch.
Every now and then, I fret that perhaps I am too cynical. Then I realize one can almost
never be cynicalenough.