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John Mauldin - Horse, Pig, Helmet, Man, Woman

July 22, 2013 | About:
Canadian Value

Canadian Value

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... but the rest of the inscriptions were baffling.

In fact, after 40 years of studying them, Evans had managed to decipher just a single word: total. This word appeared at the bottom of what were clearly accounts and inventories, but the wider meanings of the components of those accounts were shrouded in mystery.

Ventris didn't come across Kober's life's work until two years after her death at age 43. Then, using an all-important "key" derived from her exhaustive research, he finally unlocked the code and solved the riddle. By then, of course, it was too late for Evans and too late for Kober.

It may well be that, in 40 years or so, historians will uncover the recent comments and testimony of Ben Bernanke and his fellow Fed governors and spend a lifetime parsing them to detect any semblance of sense contained therein. Unfortunately, we who would invest or do business are forced to try and decipher them in the here and now, and that causes enormous problems.

Lately, Fedspeak Nonlinear B has plummeted to new depths of indecipherability as frantic Fed governors, terrified by the extent of the reaction to the slightest hint that the Free Money Express is pulling into the station, have scrambled to fine-tune the effects their hieroglyphics have had on markets.

Arthur Evans died in July of 1941 at the age of 90.
A rather ordinary name disguised an extraordinary life during which the famed archaeologist made many notable discoveries, including the unearthing of the Minoan Palace at Knossos, the site of a famous Greek mythological tale.

Legend has it that this huge palace complex which comprised hundreds of rooms linked by a labyrinth of passages, was home to the fearsome Minotaur, the half-man, half-bull who devoured seven young Athenian men and seven maidens every seven years until he was killed by Theseus with the sword of his father, King Aegeus.

Of course, this being Greek mythology, an unequivocally happy ending just wouldn't do, so the tale finishes with Theseus's neglecting to raise a white sail upon his return as a sign to his father that he has been successful in his quest, and Aegeus's promptly committing suicide by throwing himself into the sea that today bears his name.

What is it with Greeks and a dearth of happy endings? Actually, scratch that question. We'll get back to it later.

Where were we? Ah yes, Arthur Evans.

During his excavation at Knossos, Evans would also discover a series of tablets dating back to the Bronze Age that bore a riddle in the form of a set of mysterious inscriptions destined to baffle the world for the next half a century — haunting Evans to his grave.

The inscriptions were like nothing ever seen previously: although they contained a set of pictograms that were fairly easy to decipher, there was also a set of cryptic characters that would consume some of the smartest minds of a generation until, 52 years after their discovery, an Englishman called Michael Ventris would at last be credited with solving the riddle of the language that Evans had, for reasons known to only himself, named Linear Script Class B — or Linear B for short.

In the years that intervened between Evans's discovery and Ventris's solution, an American college professor named Alice Kober would devote her life to the unraveling of Linear B; but, though her work undoubtedly laid the groundwork for Ventris's discovery, it was the Englishman who received the acclaim. Such is the way in matters like these, unfortunately.

The pictograms contained in Linear B were simple in construction — let's face it, even I could have figured this little lot out:

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... but the rest of the inscriptions were baffling.

In fact, after 40 years of studying them, Evans had managed to decipher just a single word: total. This word appeared at the bottom of what were clearly accounts and inventories, but the wider meanings of the components of those accounts were shrouded in mystery.

Ventris didn't come across Kober's life's work until two years after her death at age 43. Then, using an all-important "key" derived from her exhaustive research, he finally unlocked the code and solved the riddle. By then, of course, it was too late for Evans and too late for Kober.

It may well be that, in 40 years or so, historians will uncover the recent comments and testimony of Ben Bernanke and his fellow Fed governors and spend a lifetime parsing them to detect any semblance of sense contained therein. Unfortunately, we who would invest or do business are forced to try and decipher them in the here and now, and that causes enormous problems.

Lately, Fedspeak Nonlinear B has plummeted to new depths of indecipherability as frantic Fed governors, terrified by the extent of the reaction to the slightest hint that the Free Money Express is pulling into the station, have scrambled to fine-tune the effects their hieroglyphics have had on markets.

Bernanke himself has been the "key" to solving the latest riddle, but so far the Da Benci Code has remained an enigma. Take for example this week's Humphrey Hawkins testimony — his last before he retires in January 2014

The closest we have to a "key" these days is something called the "Hilsenrath Stone", which was uncovered a few years ago based on word-frequency patterns in Bernanke's speech. Using the Hilsenrath Stone, we can readily discern the specific bits of language that Bernanke himself thought were important, and by extension we may be able to decipher the wider code.

Let's begin.

In his recent post-testimony piece in the Wall Street Journal,Hilsenrath highlights four key passages from Bernanke that the Fed wants us to focus on he thinks are important and then comments on them. I lay them out below with the keys from the Hilsenrath Stone underlined in bold. Using these 'keys' we can decipher a message hidden amidst the runes:

(WSJ): 1) WHAT HE SAID: "The risks remain that tight fiscal policy will restrain economic growth over the next few quarters by more than we currently expect, or that the debate concerning other fiscal policy issues, such as the status of the debt ceiling, will evolve in a way that could hamper the recovery. More generally, with the recovery still proceeding at only a moderate pace, the economy remains vulnerable to unanticipated shocks, including the possibility that global economic growth may be slower than currently anticipated."

WHAT IT MEANS: Lots of focus on downside risks here — which is striking, because the Fed said in its June policy statement that downside risks to the economy had diminished. That's a slightly "dovish" tilt toward easy money.

2) WHAT HE SAID: "I emphasize that, because our asset purchases depend on economic and financial developments, they are by no means on a present course. On the one hand, if economic conditions were to improve faster than expected, and inflation appeared to be rising decisively back toward our objective, the pace of asset purchases could be reduced somewhat more quickly. On the other hand, if the outlook for employment were to become relatively less favorable, if inflation did not appear to be moving back toward 2 percent, or if financial conditions — which have tightened recently —were judged to be insufficiently accommodative to allow us to attain our mandated objectives, the current pace of purchases could be maintained longer."

WHAT IT MEANS: Mr. Bernanke tries to be even-handed here about the outlook for bond purchases, but he spends a lot more time talking about the conditions that could convince the Fed to leave bond buying in place than he does on the conditions that would convince the Fed to pull back sooner than planned. Another dovish tilt.

3) WHAT HE SAID: "If a substantial part of the reductions in measured unemployment were judged to reflect cyclical declines in labor force participation rather than gains in employment, the committee would be unlikely to view a decline in unemployment to 6.5 percent (unemployment rate) as a sufficient reason to raise its target for the federal funds rate. Likewise, the committee would be unlikely to raise the funds rate if inflation remained persistently below our longer-run objective."

WHAT IT MEANS: The Fed has said it won't raise the fed funds rate until after the jobless rate falls below 6.5%. These comments, along with others Bernanke has made, suggest the Fed could wait for a while even after the jobless rate falls below 6.5% before trying to raise short-term rates. The 6.5% threshold appears to carry less and less meaning as the Fed tries to emphasize low rates for a long time.

Continue reading here.

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Canadian Value
http://valueinvestorcanada.blogspot.com/

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