Tuesday, 17 July 2018

On Janet and Germany

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Anthony Peters looks at the Fed chair-in-waiting and what she can learn from Germany.

Anthony Peters

Anthony Peters, SwissInvest strategist

Today’s press, both financial and other, will be full of news and comment on the nomination of Janet Yellen to fill the soon to be vacant chair of the Federal Reserve System. The former will focus on her track record, her competence and the fact that she is of a dovish disposition. The latter will be excited that she’s a woman.

As far as I am concerned, she could be green with pink spots, so long as she gets to grips with the concept that central bankers are not here to bail out vote-hungry politicians and conveys that clearly to the kindergarten on Capitol Hill. In that, I doubt she will have significantly more success than her two predecessors but I trust she will, nevertheless, make a pilgrimage to visit an ageing Paul Volker, Fed Chairman from 1970 to 1987, in order to learn a bit about how to place monetary policy above electoral policy and how to get away with it.

Having been though both a spring and a summer where all the stars appeared to be aligned, cracks are beginning to show in both economic performance and underlying up-stream confidence.

By the way, don’t you agree that were there to be any suggestion that if she were to run the Fed any differently because she is a woman than if she were a man, she should not have been nominated? Isn’t the brief to be the best Fed Chairman (or Chairwoman or Chairperson) possible and not the best female Fed Chair? Well, maybe I’m just a bit old fashioned….

Meanwhile, please look at the following with respect to the IMF: “The key message was that the politicians need to do more to counter slower than expected economic expansion. The key number at the centre of the presentation was that of the global growth forecast for this and for next year which the IMF has revised down to 3.3% and 3.6% respectively from 3.5% and from 3.9%.”


Now please look at this, also from the IMF: “It now expects the global economy to expand by 2.9 per cent this year and 3.6 per cent next year, shaving off 0.3 and 0.2 percentage point respectively from its most recent forecasts in July.”

Spot the difference? No, it is not just a typing error. The latter is quoted from the Straits Times of yesterday, the former is taken verbatim from this very column a year ago today, October 9th 2012.

So, this time last year the IMF was downgrading its forecast for global economic expansion from 3.9% to 3.6% in 2013 but now it suggests that it will only scrape home 2.9% but at the same time is certain that it will be 3.6% next year instead. Has Olivier Blanchard’s department at the IMF simply been unlucky or is it just being patently over-optimistic?

Having been though both a spring and a summer where all the stars appeared to be aligned, cracks are beginning to show in both economic performance and underlying up-stream confidence. Please don’t get me wrong here; consumer confidence is at near record highs but when, if ever, were all those Joe Six-Packs in the ‘burbs and the boonies ahead of the curve?

A Yellen Fed, should the good lady gain approval and be confirmed in the role which is, I’d suggest, a near certainty will no doubt begin “as steady as she goes”. The FOMC will have to contend with a possibility that monetary policy is looser than it needs to be but that any form of tightening, even if only minor and technical, will have all those PhDs, CFAs, MBAs and people who work in the investment industry – and should know so much better – running around like headless chickens, behaving as though the world were just about to come to an end.

Once again the cool head in the storm was provided by Germany’s indomitable finance minister, Wolfgang Schaeuble, who spoke at a conference yesterday and who reminded all those who might have forgotten that “The truth is, one prolongs the problems only when trying to solve them by printing money.”

I wonder if all those fans of Abenomics are listing and if so, whether they are hearing? Schaeuble is quite clear that simply because the markets have decided not to hate the PIIGS quite as much as they had, that the foot must not be taken of the reform pedal. He continued that “Structural reforms that have been started to be implemented must be continued,” reiterating his opinion that there is no other choice if the Eurozone economy is to return to competitiveness. He again made it quite clear that the ECB can be part of the solution, but not the whole of it, and woe betide those who believe it can.

Why is it that everybody looks to Germany full of admiration (and envy) for its economic success but then rapidly turns away again when it cares to point out how it got there? I’m sure Madame Yellen will be quite cognisant of this too.  

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