INVESTING: Good riddance, Greenspan, and your heavy-handed ways

A centrally planned economy. A few guys in a back room making unaccountable decisions. Men obtaining supreme power through unelected means.

Americans fought wars to avoid living under the Soviet-style government I just described above. The problem is I am not describing the Soviet Union. I am talking about or own country!

The Federal Reserve Bank of America is run like a dictatorship. It is insane that we give so much lip service to the power of democracy and the free markets, yet totally bend over when it comes to the Fed.

There was almost as much speculation last week over who was going to replace Alan Greenspan as there was earlier this year over who would be the new pope.

Obviously, the person heading the Fed is important in our lives. The president picked Ben Bernanke, but I don’t care if it was Bugs Bunny. I don’t care because we shouldn’t have a chairman of an organization we don’t need.

How can I say we don’t need a Fed? You say the Fed is the reason our markets enjoy high confidence from investors. You tell me the Fed navigates us away from instability and keeps the inflation bogey man at bay.

Blah, blah blah. The Fed swaps long-term volatility for short-term volatility, takes way too much credit for the good times, and blames you-the American people-for the bad times.

Look at Sir Greenspan’s record, and decide for yourself. In 1967, he wrote an essay calling for a complete demolition of the Federal Reserve System in America. He accurately predicted many of the problems the Fed currently faces, such as creating a sense of hope among investors that the Fed can bail them out.

Two months after he took office in 1987, we experienced the second-greatest stock market crash in our history. In two months! Nice work, Greenie!

In 1996, Greenspan tried on the hat of spoilsport by saying our equity markets were in a phase of irrational exuberance. The markets managed to go much higher over the next three years.

Then, in the late ’90s, Greenspan and Co., through a series of missteps, helped facilitate the second-worst bear market in history.

Whatever the reason, he raised rates too much in the late ’90s, then took them too low a few years later.

As Greenspan prepares to retire, the Fed is getting ready to do too much of something again. It will keep raising interest rates, even though free market rates have barely changed the last two years.

The Federal Reserve has entirely too much power, and isn’t accountable to the people it’s supposed to serve. My job is to uncover ways to profit in any environment. If the Fed screws up again and the stock market tanks as a result, I’ll make a ton of money on the short side. If Bernanke can figure out a way to subdue the powers of the Fed, and the markets respond favorably (as I expect they would), I’ll make a windfall on the long side.

But what about you? Shouldn’t you be screaming to kill the Fed and let the free markets work? After all, isn’t that the reason we fought all those wars, anyway?



Hauke is a local money manager. His column appears weekly. Views expressed here are the writer’s. Hauke can be reached at 566-2162 or at keenan@samexcapital.com.

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