Waiting for Our Ship

“Waiting for our ship to come in.”

That was the expression my mother used to describe the act of hoping for an unlikely financial windfall.

The New York Lottery used to have an advertising campaign that expressed the same thing

“All it takes is a dollar and a dream.”

So my question is, how can the entire US capital market (stocks and bonds) behave as though it knows its ship is about to come in?

Every time I read or hear the phrase “QE2” I think of the former Cunard line flagship.  Since it sailed for nearly 40 years beginning in 1969, I can’t be the only one having that reaction.

This morning I saw the President of the St. Louis Federal Reserve acting as guest host for CNBC’s early show, the Squawk Box.  When he started talking to Joe, Carl and Becky about QE2, I was nearly overwhelmed with unrelated but strongly linked memories, like Proust with his madeleine and tea.

First among the memories was the echoing sound as they broadcast from the cavernous lobby of the 1925 temple to capitalism built there on the banks of the Mississippi in the gateway to the west.   When it was built, the city of St. Louis was still basking in the memory of the worldwide recognition it got in 1904, when it hosted both the Olympic Games and a World’s Fair.

To me, that sound and sight brought back memories of other absurdly large marble lobbies with a single massive mahogany desk rendered tiny by its setting.  The Fannie Mae lobby on Wisconsin Avenue, for example, where I once attended a dinner for 400 that featured entertainment by the satire group Capitol Steps.   Or the former Met Life tower at the base of Madison Avenue that got decapitated when it became the First Boston HQ.

Then there’s the name of the show.  That’s another throwback to a different time with its own sensory tags.  Squawk boxes, also known as “top lines,” were the background sound on every bond trading desk in the 1980’s, as ubiquitous as ticker tape crawlers winding around the walls of equity trading floors.

Traders would announce their focus positions or inventory needs for purchases  (“axes”) over the Top Line, and salesmen throughout the system would scramble to grab the higher commissions they’d get from handling those trades.  We’d hear them competing with each other to grab the bonds first, and occasionally hear fights break out when two salesmen both thought they had gotten the trade.

Then there were the self-anointed sales “stars” who seemed to use the squawk box for every trade inquiry so they could announce their success to dozens of branches all over the world rather than simply picking up the phone to call the trading desk.  It often broke the stress of our jobs to hear certain characters out in the branch system break in loudly over the floor.  We had one Texas salesman, for example, who drawled so slowly that other salesmen would have been done with their entire transaction in the time it took for him to say his name.

I suppose the existence of squawk boxes or top lines at all the big firms helped make a community out of fixed-income trading and sales, something that was hard to do when there wasn’t an exchange floor like commodities and stock jockeys had.  You knew you were “home” when you walked onto a bond trading floor anywhere in the world, at any firm, because the atmosphere included audio punctuation by the sound of traders and salesmen buying and selling, announcing new inventory or letting people know that positions were out the door, and an occasional three minute “strategy” idea from research or “elevator pitch” for a new issue that featured some investment banker that came down from some other floor for the occasion.

Not to get too Proustian about the whole thing, I did like the fact that St. Louis was the locus for today’s morning show.  First of all, the St. Louis Fed is my favorite in the system because they jumped right in to the internet revolution and gave people like me an invaluable free data resource (Fred) beginning in the mid-1990’s.  I heartily recommend hitting that Fred link and bookmarking it.  Practically the best source of economic and market data you’ll ever find, and the price is right.

As the St. Louis Fed President Bullard pointed out this morning, that Federal Reserve region is smack in the middle of America, and provides a little bit of Main Street balance to the overwhelming pull of New York and Washington.

I do have to say that St. Louis lost something when they let their NFL team go, and the city didn’t keep the team name.  It just doesn’t seem right that any other city have a team named the Cardinals, and the problem is only compounded when Los Angeles’ team calls St. Louis home.  It’s just not right.

Anyway, back to QE2.

When asked about it, Bullard said it wasn’t the done deal the stock and bond markets seem to think it is.  He opined that a second round of Quantitative Easing is really only likely as an emergency measure the Fed uses to deal with a genuine systemic shock, not the inevitable result of 10% unemployment.

The market, of course, continues to believe its ship is about to come in.

The question is, how long will the market continue to rally before it wakes up one day and realizes the QE2 is permanently docked in Asia?

hh

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3 Responses to Waiting for Our Ship

  1. Conscience of a Conservative says:

    Great piece, as always. It’s only recently dawned on me how much the Fed engages in Public Relations(getting the public ready for quantitative easing in this case). The fed is priming the public getting them ready for higher inflation and lower interest rates in the hope of higher asset prices and unfortunately a lower dollar.

    It would be interesting to know the process if any by which Fed officials are permitted to speak. NPR had someone from the New York Fed a while back and they described something to that effect.

    By the way, this whole quantitative easing is very unnerving. One Trillion dollars has been shifted from various savers to the banks and its still not sufficient to make up the losses the banks are taking on failed assets. Q.E. is not really about lowering rates as much as it is about inflationg asset prices(Brian Sack- “Nevertheless, balance sheet policy can still lower longer-term borrowing costs for many households and businesses, and it adds to household wealth by keeping asset prices higher than they otherwise would be.”
    http://www.ny.frb.org/newsevents/speeches/2010/sac101004.html

    • hhill51 says:

      Thanks for the compliment….
      \\
      I have to wonder whether the current PR campaign isn’t so much about preparing the public for Q.E., the sequel, but rather an attempt to trick the public into doing it for themselves, while the Fed keeps its last bullet. Like the story of the town full of cow farmers that kept selling the same cow to each other at ever-higher prices, so they all felt rich.
      \\
      By the way, I had to delete a whole bunch of recollections triggered by that Met Life tower, which was out the window from one apartment I rented (at least the part they chopped off was visible)…. that gigantic door and gate was very similar to the doors/gates behind the CNBC people this AM. Those 11 MAdison gates were basically the beginning and end of the movie “After Hours.” Roughly half of that movie took place in a loft downtown that I looked at subletting. When I didn’t sublet it, the film crew rented it instead. Weird.
      \\
      Proust had no problem going to multiple volumes (seven?) and rewriting his novel for most of his life, but I decided to hold it down in length, and post instead.

  2. Jeremy says:

    Well said HH. The market went above 11000 today. Tell the rational basis for such exhuberance? There is none. The higher it is the harder it will fall. Watch out below!

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