Posted by Rick Stine
on March 18, 2011
, Japan Earthquake
Retail investors are often looked on as the unsophisticated types who move slowly and late and rarely have a short-term affect on financial markets. They broke from that mold in Japan, where retail FX traders (known as Mrs. Watanabe) contributed to a surge in the Japanese yen this week when they began to unwind a popular strategy called the carry trade. Many of these investors had shorted the yen and gone long currencies that offer higher yields (the so-called carry trade). Concerned about the effects of the horrible earthquake in Japan on its economy, these investors unwound these trades – meaning they bought the yen en masse and sold the other side of the trade, often the Australian dollar.
Is it possible that the retail investor could move the currency of the world’s third-largest economy this way? Sure thing, because Japanese retail trading of the yen can account for nearly 30% of all trading on any given day.
The Federal Reserve has a committee studying how to improve communications with the public. But change was not in evidence in the latest statement issued today following the rate-setting meeting of the central bank.
In a bid to be more open with investors and the general public, the Fed should adopt a less stilted post-meeting announcement of its rate decision. Sure, each word the Fed utters must be carefully chosen because each word will be subject to over-the-top analysis by market types and analysts. But still, the Fed should indicate it doesn’t live in a cave.
This may be a case of over-the-top tea-leaf reading.
So, by definition, it will be convoluted. But here goes. My interpretation of some comments made today byFederal Reserve Vice Chair Janet L. Yellen indicates the central bank will feel no rush to remove the famous “extended period” language from its post-meeting statements.
The reason for that, essentially, is that Yellen thinks the Fed’s conditionality around that phrase has been sufficient to allow market participants to change their views about when the central bank may finally come off its long-standing emergency easy policy, which features zero short-term interest rates. Said another way, the phrase “extended period” is flexible.
The incongruity wasn’t lost on the Federal Reserve chairman or the crowd.
“But before asking the last question, a couple of very important matters to take care of,” intoned the moderator at Fed Chairman Ben Bernanke’s rare press conference today in Washington at the National Press Club. “Want to remind our members and guests of future speakers. Harry Shearer, the comedian and humorist, a voice of ‘The Simpsons,’ will discuss media myths on March 14.
“And we might even try to get him to do a few voices for us,” the moderator added, according to a transcript.
Every great government institution deserves a nickname. The U.S. Senate has been called the “world’s greatest deliberative body.” The House of Representatives is referred to as the “People’s House.”
True, these terms of endearment also have been much used ironically and cynically, depending on what’s been going on in those storied institutions. But, through thick and thin, the nicknames have lasted.
The president of the Federal Reserve Bank of Dallas may have on Wednesday, presumably without planning, come up with a terrific nickname, or at least a nickname idea, for the U.S. Federal Reserve. Richard W. Fisher spoke of the need to protect the integrity of our “delicate franchise.”
The U.S. footbal analogy is this: the Federal Reserve is like a runner who has picked up a lot of yards, but now wants to lateral the ball to another runner. The question is whether that second runner is available and what he will do with the ball.
A tortured analogy. Guilty as charged. Federal Reserve Bank of Dallas President Richard Fisher prefers maritime analogies.
The Fed “has helped raise the tide” he told Dow Jones Newswires reporter Michael Derby today in a video interview broadcast via WSJ.com. But a lot of U.S. employers’ boats’ “are still tied to the dock or they’ve sailed to foreign ports,” where the regulatory climate is presumed to be more favorable.
Posted by Neal Lipschutz
on January 07, 2011
, United States
“Something happened in mid-December.”
It sounds like the subtitle for a horror movie. In fact, it was a crucial quote in a rather bullish economic forecast delivered today by a former Federal Reserve chairman.
While the current chairman of the U.S. central bank, Ben Bernanke, talked to senators at a hearing and was even-handed in his outlook for the economy and offered no real surprises, his predecessor, Alan Greenspan, adopted the role of U.S. stock market bull.
It was just about a full year ago that the President of the U.S. stood in front of television cameras and referred to the “tall guy behind me.”
The tall guy was Paul Volcker, that day near the crest of a remarkable political renaissance that saw the “Volcker rule” go from Volcker’s seemingly singular quest to official Obama administration policy. Eventually, it became a still controversial part of financial regulatory reform.
The “Volcker rule” bars commercial banks from engaging in certain types of proprietary trading. Volcker’s simple point: banks shouldn’t be taking big risks when their deposits carry government insurance. If they want to trade for their own accounts, they should stop being banks or spin off the units that do the trading.
The news today is that Volcker, now 83, is going to leave his role as head of the President’s Economic Recovery Advisory Board.
Posted by Neal Lipschutz
on January 05, 2011
, Federal Reserve
, United States
Mark your calendar. Federal Reserve Chairman Ben Bernanke will take questions from reporters in Washington on Feb. 3.
When the subject of a possible Bernanke press conferences was first raised – when minutes of an Oct. 15 Fed video conference were released – we applauded. We applaud even more now that it’s been decided that a press conference with teh Fed chairman will actually take place.
The best way for the Fed to counter the notion of critics that it’s an opaque institution with enormous power somehow out of synch in a democracy is to allow as much public exposure as possible.
Bernanke has shown himself adept in a variety of public settings. Look for him to steadfastly defend the Fed’s decision to embark on a $600 billion Treasury bond buying escapade to supplement the stimulative effect of two years of zero short-term interest rates.
In the October video conference, Fed officials discussed the possibility of occasional Bernanke press conferences. We think the more the merrier.
Watch the money supply.
That much-neglected-in-recent-years indicator of economic activity might come at least temporarily back into vogue as a way to gauge what the Federal Reserve thinks of the pace of progress of the U.S. economy.
That’s a bit of tea leaf reading from the minutes of the Dec. 14 meeting of the Federal Reserve’s policy setting Open Market Committee, released today after the usual lag. Before we delve further and broaden out the concept above with a quote from the minutes, we’ll make this assertion: