TAILIEUCHUNG - Trading Greenspan, Part I(pdf)

Federal Reserve Chairman Alan Greenspan is perceived as an enigma, a man whose message is cloaked behind a wall of obtuse language. The markets spend an inordinate amount of time trying to break down that wall, hoping they might at last find the Holy Grail on Greenspanisms. But for most, understanding Greenspan to the point where both he and the Fed are even semi- predictable, and hence, tradable, is an elusive challenge. Greenspan is therefore seen as a distraction to investors who would rather focus on companies and industry fundamentals than monetary policy. But Greenspan’s influence is too powerful to. | Trading Greenspan Part I By Tony Crescenzi Federal Reserve Chairman Alan Greenspan is perceived as an enigma a man whose message is cloaked behind a wall of obtuse language. The markets spend an inordinate amount of time trying to break down that wall hoping they might at last find the Holy Grail on Greenspanisms. But for most understanding Greenspan to the point where both he and the Fed are even semi-predictable and hence tradable is an elusive challenge. Greenspan is therefore seen as a distraction to investors who would rather focus on companies and industry fundamentals than monetary policy. But Greenspan s influence is too powerful to be ignored so investors must labor over his every word. Is Greenspan in fact unhittable throwing the markets curveballs when they are looking fastball or is he telegraphing his pitches first I for one fully believe that he reveals his pitches so that anyone including you can pick them up before he delivers them. When you look closely Greenspan and the Fed in general are surprisingly open and their predictability far less daunting than legend has it. In fact the Fed sometimes strains to signal their intentions before they act. Why they do this is clear this may come as a shock to some of you they are on our side. Incredibly this is as forgotten as a trip to the dentist. Don t fight the Fed follow them The old adage don t fight the Fed is Wall Street lore. History is strewn with periods where the performance of both the stock and bond markets was significantly impacted by Fed policy 2000 is the most recent example . Along the way many investors have either profited from or been harmed by the Fed during these periods depending upon the degree of respect these investors showed toward the Fed s influence. It is astonishing to think about how often the Fed is sometimes ignored. This ignorance is usually the result of excess optimism as was seen in the midst of the Fed s most recent rate hikes or excess pessimism as seen in 1994 toward

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