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The Fed can push up the price any asset it wants to and QE 1 should have been $2.0 trillion

Apr. 29, 2011 6:19 PM ETGLD, TBT
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Value, Long/Short Equity, Long-Term Horizon, CAIA

Seeking Alpha Analyst Since 2008

Nick Gogerty he has worked at a value based hedge fund, a quant forex desk and debt prop desks, various technology and marketing firms and a deep future science research lab as well as one of the world's largest hedge funds. He is to be a guest lecturer at Columbia's Value Investing program fall 2014 and wrote, The Nature of Value published by Columbia University Press. His experience and passion runs deeply across multiple market sectors, audiences and geographies. Mr Gogerty has lived in 6 countries across 3 global regions, solving complex business problems. Previously, Mr. Gogerty developed commodity hedge fund portfolios and indexes, working as a quantitative developer and trader on a proprietary foreign exchange desk in London. In addition, Mr. Gogerty has been a serial entrepreneur in convergence spaces between technology and media. He has also testified before the U.S. Senate on technology and counter-party financial risk with regard to the year 2000 transition. Mr. Gogerty holds a Bachelor of Arts in cultural anthropology from the University of Iowa, an M.B.A. from the Ecole de Ponts et Chaussees in Paris. He holds or has held Series 3, 7, 63 and FSA licenses. Nick holds the Chartered Alternative Investment Analyst (CAIA) (http://www.caia.org/) designation. Mr. Gogerty lives in New York City with his wife Mercedes, where he enjoys reading about finance, technology, design, applied science and sustainable development in emerging economies. visit www.thenatureofvalue.com
The title is not mine,it is paraphrased from former Fed official who wokred on QE1 (see video below).  I find the quotes quite scary, reflecting a fundamental misunderstanding of price and value and incredible hubris.  These statements were made by a former Federal Reserve employee this week.  See scary video:



Joseph Gagnon, Future of the Fed from Roosevelt Institute on Vimeo.

Listen carefully above about pushing up the price of assets.  Value investors will understand what a fools errand this is.  When the fed "pushes up the price" of something long term value hasn't changed with the exception of the dollars made for the purchase.  Those dollar's value will go down and most likely the assets will revert to value.  Distressed assets work the same, but should the fed really be a tarted up vulture fund dry humping the latest depressed asset of some too big too fail banker.

I attended the Roosevelt Institute conference on the future of the Federal Reserve hosted at the Harvard Club in New York. A friend joked it sounded like a meeting of the illuminati.  Well not quite that much fun, no hoods, tin foil hats or goat sacrifices, just an 8AM continental breakfast with bagels and chit chat about monetary plumbing.  

The intimidating thing is the vapid fawning discussions of Fed power. The Fed and others believe it can affect un-employment etc. a la the Phillips curve argument. Many economists in the room seemed to believe the Fed can cure cancer, anorexia and malaria if just given more mandates or regulatory "tools" as the wonks say.  Lots of bright people in the room were focused on the Fed hammer as an uber tool for any problem, this perception is a major part of the problem.

There was a frightening lack of global perspective displayed with the exception of Jorg Bibow, who said, "be thankful, just for the Fed's problems. Just look at the ECB."  

Most who argue about Fed policy or markets are talking from a statistical sample of one and deserve the attention that such sample sizes warrant. Belief in continued American exceptionalism can be parochial and limiting to thoughtful debate.

I view the Fed as having asymmetric power, meaning mostly they can do only harm and the best good they can do is to function passively similar to good surgeons in the 15th century and with about the same level of tools, knowledge and sadly over-confidence.

The conference had good discussions of the woeful failures in regulatory oversight. These oversights were failures to act which would be criminal negligence in the private sector.  Why isn't there an equivalent to fiscal or regulatory manslaughter? Where are the class action suits against regulatory failures due to inaction?

Dennis Kelleher had some good comments about this and other things.

Plumbing as infrastructure is an asymmetric tool of empire. Plumbing is what keeps the empire running, it only facilitates growth but doesn't garuntee it.

failure to function can limit or constrain growth.  My opinion is that the Fed is mere plumbing and quite mucked up.  Watch the videos if you dare.  Elliptical utterances followed by non-falsifiable tautologies fill the air and these are mostly the good guys seeking transparency and improvement.

 Mike Konczal did a great job putting the conference together. P.S. it couldn't have been illuminati (it was free to any and all and they let me in)

Many presenters were honest in their wish for a more open Fed and many used the phrase regulatory capture to indicate their beliefs that banks own the Fed which is probably legally true if the shareholder structure of the Fed were publicKind of weird to think the Fed Shareholders could be the firms being regulated by it...what could possibly go wrong with that closed loop?

I find the Fed silly with its sense of secrecy and importance. With the exception of D-Day invasion type activity, rarely has widespread secrecy been proven to be in the interest of any citizenry long term. If the Fed is so important that it can only function secretly it will find at some point the tide turns and its air of mystery won't induce awe but rather deep doubts, by then it will be too late

Many present pointed to the excellent Rolling Stone Article about the Real Wives of Wall Street.  If this is the tip, how big is the iceberg?  I advised friends and family to get out using Norwegian Krone Overlay's in early 2009

Disclosure: I am long GOLD.

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