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It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

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LADIES’ TURN (II)

Finally speaking officially as the new Fed boss, Janet Yellen, on Feb. 11, told lawmakers

  • she expects there to be “a great deal of continuity” in the central bank’s policies in testimony at her first congressional appearance since becoming the central bank’s chairwoman.
  • “I served on the Committee as we formulated our current policy strategy and I strongly support that strategy,” Ms. Yellen said in her remarks prepared for delivery before the House Financial Services Committee.
  • Ms. Yellen signaled that recent soft economic data haven’t swayed the central bank from a strategy of trimming its monthly bond purchases by $10 billion at each of its policy meetings this year. She repeated language from the Fed’s January policy statement, saying that if the economy improves as the Fed expects, the Fed “will likely reduce the pace of asset purchases in further measured steps at future meetings.”
  • She also emphasized that the bond-buying program is “not on a preset course” and officials will base their decisions about the pace of the program on their economic outlook as well as their view of the costs and benefits of the program. (…)
  • Ms. Yellen also said U.S. central bank policy was aimed at domestic economic objectives and couldn’t be blamed for market volatility overseas. (…)

We have “Flexible Mario” in Europe and now “Firm but Flexible” Janet in the U.S.A.

But be careful in assuming Mrs. Yellen is just a female version of Mr. Bernanke.

Since I posted LADIES’ TURN in June 2011, women have continued to gain leadership. South Korea now has a female president while many companies have elected women CEOs including Lockeed Matin and IBM. Many other highly successful companies are led by their female founders.

Curiously, since women have risen closer to the reins, the world seems to have gotten better. And now, the most powerful financial institution in the world is woman-led.

A study by Barclays Capital and Ledbury Research revealed that

men tend to have a higher risk tolerance, are more likely to label themselves “financial risk takers” and have a greater tolerance to choose high risk investments.

The gender differences on risk taking are significant:

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Women are more likely to make money in the market, mostly because they don’t take as many risks. Women trade this way because they aren’t as confident — or perhaps as overconfident — as men. Women are more likely than men to have a greater desire for self-control.

Risk aversion, self-control, discipline, true words of wisdom that have disappeared from men’s vocabulary but that women fortunately keep using.

Ben Bernanke was the right MAN at the right time. He realized that the Fed was driving blind and, most importantly, that the Fed was the only smart and unbiased driver. Politicians, as always, drove their own bus their own way towards their own personal goals. Banks were deeply wounded and could not be expected to perform their normal multiplier role. Corporations, burned and scared by the crisis and fearful of untrustworthy politicians would sit on their hands until the skies cleared for good.

The Fed needed to put the pedal to the metal until something good happened. The only hope, Ben’s gambit, was that the forced medication would morph into financial heroin and gradually find its way into rising equity prices. The ensuing wealth effect would eventually pull the economy out of its morass. At some point, he could begin forward guidance which would drive rates through the floor which, eventually, would lead to higher borrowing, higher lending, and higher spending.

We are there, although unsure if this is really it and what will happen next. Still, the high risk game is over. We now need more cautious, gentle guidance. Somebody with a better understanding of how to get there, slowly but surely. Time for a woman to take the lead.

  • Some recent economic data have been soft, Ms. Yellen noted in her steady-as-she-goes comments before the House Financial Services Committee, but she doesn’t want to overreact to that.
  • “I was surprised that the jobs reports in December and January, the pace of job creation, was running under what I had anticipated. But we have to be very careful not to jump to conclusions in interpreting what those reports mean,” Ms. Yellen said. Recent bad weather may have been a drag on economic activity, she noted.
  • Ms. Yellen’s goal was likely to make no waves. If so, she succeeded. In two instances, she thanked lawmakers for calling her unexciting.
  • Lawmakers also praised her for her endurance. After the hearing, few Fed officials could remember a monetary-policy report to Congress lasting so long.
  • Ms. Yellen, who described herself at one point as a “sensible central banker,” delivered her remarks in a matter-of-fact and somewhat monotonic style.
  • Her prepared testimony was notable in part for its brevity—a little over five pages compared with the typical eight to 10 pages of her predecessor. “I’ve understood more of what you said today than I have probably the last two folks that were in front of us,” said Shelley Moore Capito (R., W.Va.) referring to Mr. Bernanke and his predecessor Alan Greenspan.
  • Asked what would cause the Fed to alter its course, Ms. Yellen responded it would take a “noticeable change” in its outlook for growth, employment or inflation.

For their part, equity markets rose strongly, seeing no noticeable change in the Fed leadership. As usual, they may be missing the bigger picture, or the finer details…This will not be a smooth ride. At this stage, however, I prefer a more cautious driver. Let’s see how she really rides.