By DAVID MOON, Moon Capital Management
Despite baseball's feeble attempt to create some interest in last week's
All-Star game, the boys of summer no longer hold Americans' hearts the way they
once did. Michael Jordan and Larry Bird are gone from the NBA. What
is our national pastime? Most people can't relate to a human the size of a
small country running a 4.7 second forty-yard dash, so it's not the NFL.
I'm convinced our new favorite spectator sport is Fed Watching.
At the grocery store and the barbershop. In the Tractor Supply store in
Halls. Everywhere I went in mid-June, people were talking about the June
Federal Reserve Board meeting. A friend in the hospital, heavily drugged
and about to enter surgery, asked me, "do you think they are going to cut a
quarter or half point today?" Almost as soon as the June 25 Fed meeting
concluded, commentators mixed analysis of the Fed's decision with anticipation
about Chairman Greenspan's next (seemingly bi-weekly) testimony in front of a
group of publicity-hungry congressmen.
CNBC places cameras outside Greenspan's office to check the thickness of the
Chairman's briefcase. If he's carrying a bunch of paperwork from home,
does that mean they're more likely to cut rates? Do he and his wife, NBC
newsperson Andrea Mitchell, really curl up in bed at night and read commodity
I see a reality show in the future - sort of a cross between The Osbournes
and Louis Rukeyser.
But despite the apparent popularity of Fed Watching, the value of the pastime
is questionable. Even if you had advanced copies of all of the meeting
notes from the Fed meetings, what would you do? Try to make investment
decisions? You might do better flipping a coin. Consider this
excerpt from the June 25 Fed meeting notes:
"The committee perceives that the upside and downside risks to the attainment
of sustainable growth for the next few quarters are roughly equal. In
contrast, the probability, though minor, of an unwelcome substantial fall in
inflation exceeds that of a pickup in inflation from its already low
level. On balance, the committee believes that the latter concern is
likely to dominate for the foreseeable future."
Huh? In the last sentence, to what does "the latter concern"
refer? The "latter" of the two possibilities suggested in the immediately
preceding sentence? Or is "the latter" the second of the two immediately
preceding sentences? Those two different interpretations lead to opposite
conclusions. If the first interpretation is correct, the Fed believes
inflation is more likely to increase than decrease. If the second
interpretation is correct, the Fed is more concerned about a decline in
inflation than whether or not the economy grows in the next few quarters.
My head hurts just writing that last paragraph.
If you just have to engage in this new spectator sport, I strongly suggest
you participate for amusement purposes only. The Fed actually impacts very
few interest rates and is usually a lagging, not leading indicator. And
their actions are as hard to decipher as their words.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).