Last night, heading to Parigi Restaurant with a bus load of colleagues attending the Spring meeting of the Public Relations Global Network (PRGN) here in Sao Paulo, I received the following e-mail from George Williamson, a good friend and director- portfolio manager at Legg Mason’s Clear Bridge Advisors .
“Chairman Bernanke is pushing liquidity in big time. Fed has purchased since mid-January: $382 billion Mortgage backed bonds
$64 billion Federal Agency bonds
$60 billion U S Treasury bonds
$506 billion total cash moved into the financial system.
“If he continues to move in liquidity at this rate, usually stock price move up well before numbers show economy is getting stronger.
“The funds come from $911 billion that banks keep in Reserves at Fed, $292 billion Treasury accounts held at Fed along with some reverse Repos. Fed could attract more reserves from commercial banks by raising rate above the 0.25 percent it currently pays. But this rate is higher than short term Treasuries pay, so banks park liquidity funds at the Fed.”
What does this mean? Specifically, what does this observation mean to me and my colleagues – owners and managers of independent public relations firms around the world — as wrestle with strategies to survive and, we hope, rebound from the current economic condition.
George kindly responded with the following. “The Fed smacked the United States economy deliberately and it spread around the world. Now [Federal Reserve Chairman Ben S.] Bernanke will bring the U.S. back up, because his four-year term expires in January.
“Keep in mind William McChesney Martin, for Presidents Eisenhower, Kennedy, Johnson, Nixon and Ford carefully would knock down the stock market the year after each took office. Stock market declines took place in 1954, 1958, 1962, 1966, 1970 and 1974. When you look at it, very few people think that happened by chance. The Fed does what it wants and this was 100 percent deliberate. Wall Street Journal, 2/4/09, page A6, Treasury Secretary Timothy F. Geithner said ‘Policy makers [Chairman Bernanke is the policymaker; he is the boss] to teach people a lesson–made fear and panic worse than it had to be.’
“Geithner, an employee of the Fed sat in on every meeting. He knows exactly what happened. Now he and [National Economic Council Director Lawrence H.] Summers will recommend to [President Barak] Obama who the next Fed Chairman will be. Likely Summers. Bernanke is likely to make a huge effort to be reappointed.
“But I sort of doubt Obama will trust him after what he deliberately did. I started working at the Fed exactly 50 years ago and had the chance to see Martin getting ready for a meeting at the White House with President Eisenhower. That was a really big deal.
“It is very political when dealing with the President. Bernanke had the economy in collapse just at the time of the election. Martin would never make such a move. This was careless and dumb. The Fed can do just about anything they want, and now they want the economy up. And it will go up you can be fairly certain.
“Haste la vista. George”
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That conclusion is good news. Just the day before we received a cogent 11-year out scenario briefing from Edson Fregni, founder and CEO of Sciere Consultores Associados which set forth three possible futures: (1) continuity where business demands more for less; (2) crisis or twilight in the desert, and (3) growth.
I for one am happy to be looking forward to growth.
