as part of our
Summers is out!
Citing a likely "acrimonious" confirmation process, Former
Treasury Secretary, Lawrence Summers, informed the President on
Sunday that he no longer wants to be considered for the top post at
the Federal Reserve. And he was the front-runner for the
Mind you, we're just days away from the most highly anticipated
Fed meeting in history,
when everyone but me
expects Ben Bernanke to ease off the monetary stimulus. So the
timing couldn't possibly be worse.
You see, with no obvious successor to the throne of the Federal
Reserve, there's no way for investors to handicap the Fed's future
"The biggest problem with this period of indecision about
Bernanke's successor is that it does have an effect on the Fed's
ability to conduct monetary policy," says Ward McCarthy, Chief
Financial Economist at Jefferies LLC.
In other words, it creates uncertainty. And as we all know, Wall
So what does this last-minute curveball mean for the Federal
Reserve - and, most importantly, our investments? The answers might
Get Ready for
On the heels of Summers' announcement, global equity markets
rallied. Strongly. And the reason is simple…
"Markets were priced for the likelihood of a Summers nomination,
primarily for the notion that he might raise interest rates sooner
than perhaps other candidates," says Tony Crescenzi, Portfolio
Manager and Strategist at PIMCO.
Simply put, the market expected a hawk. But Obama's trusted
political allies don't seem to like hawks very much, no matter how
rare they are inside the Capital Beltway.
Now it appears the next Fed Chairman is going to be more
accommodative (i.e. - dovish). So investors needed to reprice the
I'm convinced that another curveball could be coming,
Continuity Reigns Supreme
Other than Summers, President Obama has mentioned two other
possible nominees for the top spot at the Fed: Fed Vice Chairman,
Janet Yellen and former Fed Vice Chairman, Donald Kohn.
With Summers out, "Yellen now becomes the clear favorite," says
Greg Valliere, Chief Political Strategist at Potomac Research
Many pundits agree. After all, she already has the support of 20
U.S. senators. (A few months ago, 19 democratic senators and one
independent senator sent President Obama a letter urging him to tap
Yellen for the top spot at the Fed.)
So she wouldn't have to endure an "acrimonious" confirmation
process. And neither would the market.
Not to mention that the case being made for a Yellen takeover
couldn't be more straightforward.
- "Her appointment would be viewed as more supportive for the
continuation of the Fed's current loose monetary policy stance,"
says Lee Hardman, Currency Analyst at Bank of
- "She is the candidate of continuity," says Stephen Oliner, a
former economist at the Fed Board of Governors.
- Or as the
Edward Luce puts it, Yellen, like Bernanke, believes in the Fed's
dual mandate "to aim for full employment, as well as low
We can all agree that continuity is the main selling point for a
But why should we mess with an imitation when we can have the
real thing? If we want continuity, Bernanke is the man for the job,
be for a curveball?
I know, I know. He's openly hinted that he doesn't want to
return. Likewise, President Obama has dropped more-than-subtle
hints that he doesn't want Bernanke to stay, either.
Heck, over at Irish betting site, Paddy Power, Bernanke isn't
even listed as an option. Yellen is now favored to get the
nomination at 1-to-8 odds. Kohn is second in line at 5-to-1 odds.
American economist, Jeffrey Sachs, brings up the rear as the long
at 300-to-1 odds. (See for yourself here.)
Bottom line: Another term for Bernanke isn't something many
people are talking about. Or as Valliere says, "Anyone other than
[Yellen] would be a major surprise." Indeed!
But the oddsmakers and pundits were completely wrong once. So
there's no reason they won't be wrong again.
And while we could argue all day about Bernanke's policies,
there's no arguing the outcome -
he's been good for stocks
. And if he returns for one more term, he'll
to be good for stocks.