Does Ben Bernanke Have a God Complex?
Financial markets react to our Fed governor.
You ask me if I have a God complex. Let me tell you something: I am God.
-- Dr. Jed Hill (Alec Baldwin) in Malice
After a series of marathon meetings with folks from Europe, I arrived home late last night and began to digest my thoughts. I had been at my desk after-hours when the futures began to spike and turned to identify the catalyst; there he was in all his glory, Mr. People Pleaser, Ben Bernanke.
I've been trading 23 years and I've seen my fair share of events. I won't list them but suffice to say that in almost a quarter-century, the markets have been a whirlwind of multi-linear dynamics. When I began my career, "fills" took up to eight minutes as floor brokers ran back and forth from phones to posts; these days, reports are measured in nanoseconds with fewer and fewer humans involved.
The DNA of the global financial marketplace is what concerns me most and this isn't sour grapes or trades gone awry. A few weeks ago, it genuinely felt as if Ben Bernanke finally found free-market religion; after five years of A Grand Experiment that cost trillions of dollars and failed to produce any semblance of legitimate economic growth, he seemed intent on beginning the long hard road of weaning the markets off synthetic stimulus and steering capitalism toward meritocracy.
Almost immediately after financial markets began to self-correct—and we're talking about a few percentage points—his top lieutenants began to backtrack, saying their Fed head was “misunderstood." We asked at the time whether the jawbone was connected to the backbone; last night, we got our answer.
A decade ago, Alan Greenspan was praised as the Maestro of the Markets. We at Minyanville took the "other side" of that trade and warned of the cumulative comeuppance brewing in the background, imploring folks to pay attention to the why rather than the what—and make no mistake, the “why” was self-evident to anyone who chose to pay attention.
Mr. Greenspan's legacy shifted dramatically in the years that followed; the bloom quickly faded from that rose. Big Ben, for his part and in my view, is following in the footsteps of his predecessor.
Last night, on my way home from my last meeting of the day, I was struck by two things on Twitter. The first was the end-zone dancing by the bulls; the second was the widespread praise for Mr. Bernanke's kick-save of the tape. I censored myself, refusing to share my thoughts as I have strong feelings on the subject. Someone once taught me to sit on an angry email for 24 hours before sending it; I employed the same discipline last night.
Emotion is the enemy when trading; this we know, and I suppose the same can be said for social media. Once it's out there, there's no taking it back. I was upset last night; not about my positions but about how this profession has devolved from a capital market meritocracy to the quivering lips of a single man and his personal feelings on how markets should be managed. We used FUBAR before and I can't think of a more apt description of this environment.
Where do we go from here? For the last several years, we monitored how many of the smartest investors have gone dark, opting to let central bankers "vanquish themselves" before returning to their craft. The list is long and impressive and it continues to grow. In the words of legendary investor Stan Druckenmiller, "The markets are rigged…and people are chasing assets without growth backing confidence."
I hearken back to my days at Syracuse University when I studied finance; "following the smart money" was a tactic taught in textbooks as a legitimate investment strategy.
One of two things is happening before our eyes: Either the baton is being passed to a new investing world order—one where central bankers and HFT rule the day—or we're approaching an extremely dangerous juncture where following the smart money will be rewarded in spades.
That choice is yours and yours alone; my job is to paint both sides of this very important picture.
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at email@example.com.
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