I read somewhere (I think it was Barry Ritholtz book Bailout Nation) that Alan Greenspan's first utterance when stepping off of a plane, while some crisis was brewing, was "what's the market doing?" As the Greenspan story goes, during the heydays of the '90s, he couldn't grab a bite in a Wall Street restaurant without having to meander through a standing ovation on the way to his table. "The Maestro" they called him.
Milton Friedman, as you might imagine, was on the very short-list of potential Washington appointees. But while he was more than willing to give private counsel to policymakers - which he did (but, alas, he says they never took his advice) - he made it very clear that he was of better service to the "ordinary man" in his capacity as a teacher. He said (words to the effect) that when one takes a position in Washington one must become a team player, and that simply wasn't his style. As for Greenspan, I've read a few of his writings from the days he clung to the coattails of Ayn Rand, and I can tell you, when Greenspan became the chairman he became the poster-boy for team players. Truly, the bailouts orchestrated by Greenspan the maestro would have received a blasting condemnation from Greenspan the Randian.
I can't speak as confidently to the history of present chairman Ben Bernanke. I don't know that he, like Greenspan, was a once free-market ideologue, later to be captured by the political process. But regardless of his upbringing, it is abundantly clear, with QE3 in the offing, that he guzzles the Kool Aid.
Here are a few of this week's headlines:
"Bernanke's Words Could Make or Break Market Rally"
"Chance of Fed QE3 Dims for Economists and Investors Alike"
"Global Shares Dip, Euro Steadies Ahead of Bernanke Speech"
"Euro Equities Drop on Eve of Bernanke Speech"
"Rupee Range-Bound Ahead of GDP, Bernanke Speech"
"Precious Metals, Other Markets to Take Cue From Bernanke Speech"
Now, just for fun, replace Bernanke with your last name. Now you tell me, with all of mankind hanging on your every word, and knowing what the markets want, would you confess that, after pumping trillions into the financial system, it's become glaringly apparent that the present economic anemia is in fact a structural, as opposed to a cyclical, phenomenon. That you can prime the pump till you're blue in the face, and while you would surely enjoy the applause next week when you dine at Delmonico's, the net economic effect of another round of QE is going to be zip.
Here's the thing folks, the market is already awash with liquidity and interest rates are lower than my wildest dreams could have ever conjured up. Another trillion of bond-buying would surely boost equity prices for a moment, but, I assure you, monetary easing has never been more unnecessary than it is today. And, alas, over-easing, as we've learned from the era of the Maestro, can lead to some amazing, and most pernicious, asset bubbles (the obvious, presently, would be the bulging bond market). So if he does the right thing (turns off the spicket), which I don't suspect he will, expect stocks to take an immediate hammering. And understand that, while you won't enjoy opening the envelopes sporting your next few monthly statements, taking the market's eye off the Fed and onto the prospects for future corporate earnings would be the best thing, longer-term, for your portfolio.