The FOMC met last week and nothing happened. Oh, there was some slight adjustment to the wording of the statement released after the meeting, but really nothing of substance was decided. The biggest change, that had all of Wall Street calling up their old English professors, was a change in the way the Fed characterized the current state of the economy. In the June statement, the Fed allowed that the economy was expanding at a “moderate” pace and in this statement it used the word “modest”. I wrote a blog post for Real Clear Markets about the nuances of the word selection so I won’t repeat it here, but suffice it to say that the debate, like much of what passes for serious market analysis, is ridiculous. I’ll just clear it up for anyone who is interested in an honest appraisal of the current state of the US economy – it sucks.

We got a GDP report last week that included revisions to the historical record to include R&D spending as well as “intellectual property products” such as art, music, film royalties, etc. The change expanded the alleged size of the US economy by a half trillion dollars in one fell swoop. I say alleged because GDP has never been a good evaluation of the health of the economy and adding the “value” of Sharknado to the total isn’t going to help. R&D spending is certainly important but I’m not sure how the government thinks it can capture the true value of it when so much of it ends up providing no value at all. It’s like the old joke about fishing – it isn’t called “catching” for a good reason. The government seems to believe that merely casting a line in the water is sufficient to count as a positive. Like so much of what politicians propose, it is about good intentions rather than results.

Despite the contribution of  The Lone Ranger to the total of 2nd quarter GDP, the economy is not galloping along at an acceptable pace and Ben Bernanke is still searching for the silver bullet that will change that before he rides off into the sunset next January. So far, his old kemo sabe quantitative easing hasn’t been able to revive anything other than an appetite for risk which has produced record stock prices, near record margin debt and what appears to be a nascent housing bubble (again!) but not much in the way of actual economic growth. (For a detailed look at last week’s GDP report, read Jeff Snider’s take here.)  The employment report released last Friday sheds some light on the reason for that with the vast majority of the new jobs in fields that require little in the way of R&D such as bartender or burger flipper. Well, actually, I think McDonald’s now has a machine that does the actual flipping so maybe a better description would be burger assembly person.

One job that hasn’t been filled yet is the one currently occupied by Mr. Bernanke. President Obama, apparently feeling lonely in his lame duck role, made it clear recently that Bernanke won’t be around come January, assuming he can come up with a nominee that is both politically correct and able to get through the confirmation process. The two most prominent candidates are Janet Yellen, currently the vice-chair, and Larry Summers, Obama’s former chief economic advisor. Summers is best known for falling asleep in meetings, musing that girls’ lack of prowess in math and science is innate and generally coming off as an arrogant – but highly intelligent – ass to anyone who has had the pleasure of meeting him face to face. Neither Yellen nor Summers has ever held a job in the private sector unless you count Summers’ “consulting” to Citigroup which, if you consider the number of times we’ve bailed them out, doesn’t really count.

Other candidate have been mentioned as well but all of Wall Street and most of academia are concentrating on these two as the front runners. Here’s what investors need to know. It doesn’t matter. Summers and Yellen’s views on monetary policy, and economic policy more generally, are as different as night and well….later that night. Neither is likely to buck the easy money status quo at the Fed which Yellen has been intimately involved in formulating. Both are Keynesian economists who worship at the altar of aggregate demand however it can be manipulated. Neither has produced any research that could be considered ground breaking or outside the mainstream. In my opinion, the only thing that favors one over the other is Summers’ penchant for napping in meetings.

Investors are focused too much on Fed policy anyway. Once upon a time, few people had a clue as to the identity of the Fed Chair and we’d be a lot better off if that were true today. The legacy of the Greenspan/Bernanke era should, by all rights, be that Fed interventions into the market have consequences and the less done – and said – the better. Investors should be focused on the fundamentals of the companies in which they invest, not the difference in meaning between “moderate” and “modest”. The next Fed Chairperson should, more than anything, concentrate on the meaning of that last word. Modesty is a virtue in all things, central banking included.

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For information on Alhambra Investment Partners’ money management services and global portfolio approach to capital preservation, Joe Calhoun can be reached at: jyc3@4kb.d43.myftpupload.com or   786-249-3773. You can also book an appointment using our contact form.