Can we be Fed Sage? A reflection.
31-08-2011
Contrasts in style and a possible misnomer.
Yet again, it seems that the best day-to-day strategy is to stay robust and not to be deflected by irrelevant zephyrs; look to the trade winds! More prosaically, plan for the medium/long term, not for the next half an hour.
Two interesting contrasts:
Markets were hanging on for every nuance ahead of Ben Bernanke’s key speech for hints of further stimulus when the Federal Reserve chairman talked to the annual central bankers’ gathering at Jackson Hole, Wyoming. A sentimental attachment to last year, perhaps, where QE of $600bn (£368bn) followed.
Contrast this with the world’s long term investor Warren Buffett who is to pour US$5bn (£3.1bn) into Bank of America. Such is the sensitivity of markets that BofA’s stock price closed up 10% (after an unseemly initial hike of 25%). This will, no doubt, be a sharp deal and we know that he’s a man who plays to long term value, and therein real wealth creation. As the Sage himself said, "I am impressed with the profit-generating abilities of this franchise." Interesting to note that Archimedes-like, he had the idea in the bath. (How many initiatives of global importance are lost in the short embrace of the shower cubicle?)
Now, we should ask ourselves where the fate of nations really resides. Is it more relevant to tinker with the big numbers or to put value and intellectual effort into the real economy? This presupposes that governments, of whichever quarter, can really control events; except by not borrowing, of course. However, a healthy and vibrant micro economy, at business level, is the best bedrock for national fortunes.
A troubling coda to the Sage’s endeavours is the notion of “de-facto lender of last resort” mooted by Kathleen Brooks of Forex.com an idea not to be spoken of within earshot of politicians anywhere. Governments must look after economies and preferably spend less! Corporations will get it wrong from time to time, of course, but that is as far as Mr Buffet should go.
See also: