This week, in my capacity as a part of the strategy team for Principal Global Investors, I have the opportunity of attending the Milken Institute Global Conference in Los Angeles. The conference is a program that includes 140 sessions involving a total of 620 speakers and panelists. This year’s record attendance of over 3,000 brings together participants from 40 countries. By any measure, it’s an incredible range of experiences and disciplines. For the next couple days, I’ll be sharing a few insights from some of the presenters and panels, starting with this post about some of Monday’s sessions.
First, a general observation. Experiencing this conference brings home the fact that, at its core, investing is about people and ideas. In a forum like Milken, you really see the power of bringing senior business leaders and investment professionals together with clients and guests for three days packed with thought-provoking discussions. Read more
During a recent visit to the United States, the message of Japan’s prime minister Shinzo Abe to President Obama was “Japan is back!” This is Abe’s economic battle cry in his fight to end two decades of deflation, meager growth, and economic malaise. And much like Japan’s feudal lords of a bygone era, Shinzo Abe has a trusted advisor ready to lead his country into battle – a samurai, if you will. Shinzo’s samurai, to coin a phrase, is his appointee for the governor or the Bank of Japan, Haruhiko Kuroda.
Governor Kuroda’s first foray will be during this week’s policy meetings of the Bank of Japan. This week’s meetings, Kuroda’s first, will be his initial test to see if he can achieve the results that eluded his predecessor, Masaaki Shirakawa. Kuroda has assumed his own battle cry of sorts, adopting language from the European Central Bank’s Mario Draghi. “Whatever it takes!” That’s what Kuroda says he’ll do to reach a 2% inflation target within two years – a goal imposed by Abe on the central bank. Read more
Today, the Federal Reserve announced that it will keep its foot on the easy-money pedal until the unemployment rate drops below 6.5% or inflation looks to go above 2.5%. The proposal has been getting some press as of late (you can see my recent post after Fed Vice Chair Yellen brought up the idea in November). This is almost exactly what Chicago Fed president Charles Evans proposed back in 2011. Well, Evans has evidently convinced everyone else at the Fed. Read more
On Monday, the Old Lady of Threadneedle Street proved that she’s still got some tricks up her sleeve. The Bank of England (located on Threadneedle Street in London since 1734 – hence the name) shocked almost everyone by announcing that Mark J. Carney had been selected as Mervyn King’s successor as governor of England’s central bank. I say “shocked” because Carney wasn’t exactly the odds-on favorite for the job…and he’s not a British citizen. You see, Carney’s Canadian…in fact, he’s currently the head of the Central Bank of Canada. The man almost everyone thought would be the next governor of the BoE was Paul Tucker, who is currently the deputy governor at the BoE. He’s been at the BoE since 1980, so it’s not too much to say that practically everyone concerned considered him a shoe-in for the job.
This marks the first time in history that a non-UK citizen has been appointed as governor of the BoE, though there have been several U.S. economists who served on the Monetary Policy Committee in recent years. Yet of all the countries the United Kingdom could poach a central bank head from, at least Canada still has Queen Elizabeth II on the C$20 note.
Janet Yellen, the vice chairman of the Federal Reserve, is the latest in a string of Fed bigwigs to get behind an idea of using explicit inflation and unemployment targets to inform the market about the Fed’s future plans – forward guidance, in Fed-speak. During a speech to the Haas School of Business at the University of California, Berkley, Yellen endorsed the idea of moving beyond calendar-date approximations as the means of conveying information on the Fed’s future moves. Now, she stopped short of actually naming any sort of numbers, but this seems like a good direction for the Fed to move. Ms. Yellen knows what she’s talking about too; in 2010, Fed chairman Ben Bernanke appointed her the chair of a new FOMC communications subcommittee. Not to mention that if Bernanke decides not to accept a third term at the head of the Fed, Ms. Yellen is widely seen as first in line as his replacement.
Last week’s Fed meeting was fairly innocuous. They kept rates where they were. They kept their QE in place. The language in the press release didn’t change much. Yet the one thing that struck me was the almost unanimous decision. At this meeting, as with the last several meetings, Jeffrey M. Lacker – president of the Richmond Fed, was the lone dissenter on the Fed’s Open Market Committee (FOMC). Now in my opinion, neither unanimous nor hotly partisan decisions are as interesting as an “almost unanimous” decision. I keep wondering, what does that one guy know that the others don’t…or vice versa.
Earlier this week, I participated in an economics panel at the Principal Global Investors Summit Series held in Des Moines, Iowa. There was a question posed that bears repeating. A client asked what the impetus would be for the ECB to engage in quantitative easing, or QE, as has been seen from the Federal Reserve and other central banks.
The key to answering this question is Germany and its central bank, the Bundesbank. Given Germany’s scarring experience with hyperinflation in the 1920s, the Bundesbank’s sole target was to keep inflation under control. Nicknamed “The Bank that Ruled Europe” because of its size and relative importance, the Bundesbank was the model on which the ECB was built. It essentially dictated the newly formed ECB’s monetary policy set-up, which is why the ECB has such strict inflation targets and now stands out as one of, if not the, most hawkish of the world’s central banks. The ECB’s inflation target, it’s unfortunate to say, I think is probably one of the reasons that Europe is in the trouble it is.