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Spectacular TV Appearance Causes Gold to Rise Over 4%!
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(September 22, 2013) Television, that most enjoyed, criticized, watched, hated, and addictive of electronic content providers, in its early years was called a ‘vast wasteland.’ But today, television is being revitalized by shows in which serious themes are explored in serial fashion. One such show, seen during the daytime on an irregular basis, is a reality feature starring a middle-age academic (complete with beard) who speaks a convoluted form of English that normally does not make for thrilling TV. The kicker is, he seems to be the most powerful man in the world.
Last week’s show (Wednesday, 2:30 PM ET, various channels), was a continuation of the “Whither Taper?” series, in which the central bank of a major world power, led by one Ben Bernanke, having been on a five-year spree of buying up all the bonds available, finds himself with over $3.6 Trillion of them stashed away (I know what you’re thinking – only on TV, right?) and continues to buy more, some $85 Billion worth every month, although there are hints that more than that is actually getting bought. But two seasons ago, the story line took a different turn, and the guidance seemed to be that this central bank was going to taper off on its bond-buying. Sometime in the future, conditions allowing.

Further hints scattered over the past two seasons raised anticipation about this ‘taper,’ and fans of the show tuned in to see the taper promised in the last episode.

The only question was, how big would the taper be? The betting line was $10 - $15 billion, which is itself not chump change. In markets for stocks, bonds, and commodities, unknowable amounts were riding on “Whither Taper?” It wasn’t the size of the taper ($15 billion or whatever) that was so important - it was the fact of the taper itself.

When Ben Bernanke went on TV last Wednesday to say that there will be no taper, all heck broke loose. The current policy of creating over a trillion dollars out of thin air every year was not to be diminished in the least. This orgy of dollar printing will not stop in 2013, unless the economy manages to meet with Chairman Bernanke’s absolute approval.

On Wednesday, the dollar was down sharply. Stocks immediately went up - not because the economy is doing any better, but simply because the un-tapered flood of new money has to flow somewhere. Gold, not surprisingly, gained over 4% in the short few minutes that the Chairman appeared on television. To put it another way, for want of a $10 billion taper, the world’s total above-ground gold supply increased in value over $325 billion dollars in about the time it takes to watch the average sitcom.

Of course, a few questions come to mind. The first and most direct is, what is the cost of so much attention being paid to the Federal Reserve Board, and what it has to say? Despite the fact that the Fed moves pretty much at a glacial pace, why do markets react so quickly to its slightest hint of action (or lack of action)? Why is the behavior of the Federal Reserve Board so public, so guided, and pre-shadowed by so many forward-looking statements by the Fed?

Is it possible that we're getting too much information from our central bank? The talk this week was that the Fed ‘communicates poorly.’ The question is, why should they communicate at all? Does Chairman Bernanke enjoy the spotlight that much? Did he see what happened last week? Was that enjoyable for anybody, besides those who were positioned on the right side of the markets before the Bernanke Show came on the tube?

Rather than pursue the idea of ‘transparency,’ maybe the Fed would do less harm by remembering that action speaks louder than words. Years ago, the Fed’s practice was to act first, and tell the world about it later. After all, it is well within the Fed’s purview to buy bonds, sell bonds, buy or sell more or fewer bonds (or currencies, gold, or whatever), whenever they see fit, and without any warning. Such a transparency of deeds would still offer up plenty of surprises for Fed-watchers, but it would cause far less turmoil in the markets than this endless game of trying to make sense of the Fed’s coy and meandering statements about what it might do, some day, if this, or if that. It is regrettable that the Fed's statements (the false transparency of talk) hold such a strong influence over market, business, and individual behavior.

If the Federal Reserve Board would take up a 'less is more' policy on communications, then our economy, and for that matter, the citizens of our country, would certainly benefit from the resulting calm and sense of stability.

What seems unstable today? Well, take our interest rate environment – please. Current rates have been distorted by the Fed and Treasury into the most freakish of shapes, well outside of any historical norms. For centuries, rates on government 30-year bonds have ranged from 3% in times of calm to 6% in times of crisis. Today, rates it stands today, both short and long-term, have been below 3% for years. This is an artificial situation, created by the Fed, and not at all what is ‘normal’ for the way money behaves in this world. This is simply not in any way an accurate measure of the value of money loaned, money over time if you will. But the low interest rate environment, with its detrimental effect on seniors’ incomes, was purposefully created and sustained by the Fed as part of a long-running and seemingly futile attempt to kick-start our economy.

Has it worked? Is it right? By all appearances, those in power at the Fed have been trying to fix our economy through a series of academic experiments, and in the attempt have turned our monetary world upside-down.

The Ben Bernanke Show faces cancellation this December, and then the Federal Reserve Board will have a new Chairman, yet unnamed. Will the taper finally appear, to light our way out of the darkness? Stay tuned.

 

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