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Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Thursday, August 25, 2011

Monetary Policy Dudes Gather at Jackson Hole

1. The Fed knows that QE 2 led to an unfavorable trade off between economic recovery and the
inflation rate as the program progressed through mid 2011. Further, sizable QE in the near term
could be risky business for the economy and the political survival of Bernanke and even Obama.

2. The markets for private sector credit continue to thaw slowly. With the large markets for
residential and commercial real estate so slow, the Fed will have to watch liquidity barometers
carefully in the years ahead, and They may have to be prepared to use QE options from time
to time for a number of years to maintain adequate liquidity in the system as occurred over the
1932 - 45 depression era. The Fed has used a huge amount of QE ammo over the past two years
and might prefer, if possible, to move to longer term rationing.

3. The 2012 national election is roughly 14 months away. Voters are deeply concerned about the
weak labor and residential real esate markets. The Fed would probably welcome fiscal policy
assistance on these critical sectors, however belated. The Fed would prefer to see what might
be on tap in the way of new initiatives in the fiscal area before commiting to any bold monetary
action on the domestic front. And, we can all look forward to the next exciting installment of
deficit reduction buffooning ahead this autumn.

4. Last, but very far from least, is the issue of the survivability of the EU. The problems here
go well beyond orthodox monetary policy, but an important opportunity may be at hand for
Bernanke / Trichet et al to reveal Their thinking on the stabilization of the Euro area banks and
credit markets. This area is of most interest to me today. 

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