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The Paradox of Transparency: Is Central Bankers' Excessive Guidance Really Helping Investors?

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Investors scour every central banker statement for a sense of the road ahead. But rather than providing a clear road map, policymakers are offering too much confusing guidance.

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Clearly I was not alone in my reaction. It was very telling to me that on the same morning of the December meeting, Jon Hilsenrath and Brian Blackstone of the Wall Street Journal offered a front-page story titled Inside the Risky Bets of Central Banks in which they not only painted the group as academics, but added some rather striking adjectives to both the group and its actions. Call me crazy, but central bankers who "dreamed up mathematical models" while at MIT and are "among the most isolated people in government" and are now executing "high-stakes experiments," which, if they fail, could "sow the seeds of another financial crisis," are not what I think of when I think of Buzz Lightyear.

By trying to provide greater transparency, I am afraid that at the December meeting, the Federal Reserve raised more questions than it answered.

Finally, even among the most unified of central bank organizations today, there is mounting open division. Jens Weidmann, the president of the Bundesbank, has become increasingly vocal in his concerns regarding the ECB. And here at home, very recently Kansas City Fed President Ester George and Fed Governor Jeremy Stein both raised very public concerns about how today's extreme monetary policy actions may be creating "collateral" bubbles in such assets as corporate bonds and farmland.

For investors, these concerns multiply the potential for if/then statements. Now not only must investors focus on what is happening on the main roads, but they must watch for trouble on the side streets, too.

Taken together, the current central bank environment forces investors to consider far more factors today than they did even as recently as six month ago. (And that was before the G7 weighed in this week, too!)

Why all this matters so much may best be conveyed by this recent thought from former Fed economist Vincent Reinhart, who offered in the Real Time Economics blog of the Wall Street Journal:

If monetary policy is a science, then we in the private sector are the little white lab mice upon which they experiment…However, as opposed to their counterparts in the hard sciences, the effectiveness of Fed officials in white lab coats depends in part on how well we white mice understand the plan.

As we move forward into 2013, investors would be wise think about the map being offered by global central bankers. Too many conflicting details from too many different cartographers add perceived uncertainty to the route ahead. Policymakers would be wise to consider this, given how many white mice are now on the road.

Peter Atwater's groundbreaking book "Moods and Markets" is now available on Amazon and Barnes & Noble.

"Peter Atwater brilliantly provides a framework for understanding both the socioeconomic hubris that led to the great credit bubble of the past decade and the dark social-psychological hangover that has resulted from its collapse. In so doing, he offers an invaluable guide to what promises to be a very difficult and turbulent period ahead as we experience what he calls the 'me, here, and now' behavioral tendencies of the post-crash world." -Sherle R. Schwenninger, Director, Economic Growth Program, New America Foundation


Twitter: @Peter_Atwater
Position in SH and JPM
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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