Hello reader, welcome to the latest issue of HX Weekly!

Each week we bring you a new edition of HX Weekly with a combination of both new content and some of our best notes from the past.

With the passing of famed Federal Reserve Chairman Alan Greenspan this week at the age of 100 years old, we thought we would discuss his legacy as well as our unconventional (and unpopular) views on the Fed.

Enjoy the note and have a great weekend!

Alan Greenspan

The Money Maestro

This week we saw the passing of the most famous, consequential and (in his time) POWERFUL economist – Alan Greenspan. He was 100 years old.

Greenspan is most well known for serving as the Chairman of the Federal Reserve from 1987 to 2006. First nominated by President Ronald Reagan in 1987, his 19 years as Chairman made him the longest serving head of the Fed by far.

Greenspan was born in 1926 in the Washington Heights section of New York City and his introduction to Wall Street was when his father worked as a stockbroker.

Young Alan had a keen interest in music and studied at Julliard for several years but eventually attended NYU’s Stern School of Business. Afterwards, he pursued a graduate degree in economics at Columbia and then obtained his PhD from NYU. For more than 30 years he ran an economics consulting firm in NYC called Townsend-Greenspan & CO before being elected Chairman of the Fed.

There is a lot that could be said about Greenspan as he was a true Renaissance man. As we mentioned before, he was extremely interested in music and played in a touring jazz band.

He also claimed his bathtub was where he did his best thinking. He would take a morning bath that could go as long as two hours and he would use this time to read reports and write speeches.

More well known is his interest in the objectivist philosophy of Ayn Rand, the author of “Atlas Shrugged.” She claimed Greenspan as her most well-known acolyte.

We aren’t going to go into a play-by-play of his long tenure at the Fed but will share one piece of data. Over his tenure, real GDP growth in the United States averaged +3.3%. This was made up of more than +6% nominal growth with +2.8% inflation over that period.

For the world’s leading developed economy this is phenomenal growth!

The economy is a lot like a sports league. It is easy for fans to sit on their couches and criticize the coaching. Ultimately, though, it is all about the SCOREBOARD.

On that measure, Alan Greenspan was a WINNER.

Rest in Peach Alan Greenspan. In my view, you did your job and America is much better for it.

Here are some famous quotes from him over the years…

This speaks to his alignment with the philosophies of Ayn Rand.

He felt that ultimately the individual was in the best position to make decisions that would not only be to their benefit but to the system as a whole.

While he did not adhere to the strictest version of libertarianism, he certainly was a strong believer in individualism.

This quote is often used to talk about how Greenspan could be cryptic in his communications.

While we think that was his goal, we think he is saying something larger in this quote.

The reality of the study of economics (and regulators) is that nothing is ever completely clear. It is about weighing the evidence and handicapping probabilities.

Based on that analysis, you then take a course of action that you believe is best but never know if it truly will be.

Post facto, many have criticized Greenspan of hubris for his decisions.

We do not think this is true. Over his career he consistently showed an objective humility, understanding that his decision making would be imperfect. This was a result of the imperfection of the ability to predict the future.

We think that is reflected in this quote.

Some will criticize him immensely for pursuing policies that went against this insight.

We think instead it shows that he DID truly understand what he was doing from a policy perspective but was ultimately willing to make those decisions for what he felt was the greater outcome.

As we are on the verge of our country’s 250^th anniversary, we are reminded by Greenspan of the incredible positive impact that America has had on the world.

In our view, Greenspan was a great American and we are grateful for his dedication to our country.

With the passing of Alan Greenspan and the recent introduction of Kevin Warsh as the new Chairman of the Federal Reserve, we thought we would reshare this very UNPOPULAR opinion we shared about the Fed back in 2024.

Jerome Powell is NOT an Idiot

In Defense of the Federal Reserve

(Post originally ran September 18, 2024)

Given that today is the second day of the September Federal Reserve meeting and marks the first Fed Funds rate cut(s) in several years, we thought it would be a good time to look up some quotes from Chairman Jerome Powell.

One of the first quotes we found was this one…

“There is no risk-free path for monetary policy.”

This quote got us thinking about what the Fed does for the economy.

We have always been bothered by the strong consensus opinion that the Federal Reserve doesn’t know what it is doing and is constantly wrong.

The first aspect of this opinion that bothers us is how and why the people who express it think they know better.

The most knowledgeable critics have the same background as the Fed Governors. They went to the same schools, share many life experiences, and have many commonalities.

Why would THEY have better insight than these people (the Governors) who have more data and do this full-time with vast teams working with them?

For the rest of us – why on Earth would WE think we know any better?

We don’t have the training, the information, the team, or the experience!

It reminds me of a football fan watching an NFL game and yelling at the coach for a particular call.

I am sure that the fans might be knowledgeable, but to think that they know better than this highly trained and experienced professional who has massive access to information and has studied the situation is ludicrous.

That is what any one of us criticizing the Fed Governors is like in my view…

That analogy also gets me to the quote we share from Powell above.

My belief is that the Fed knows what it is doing and is in the best position to make decisions that will steward our economy's growth and stability.

That does not mean they get every call right, just like a professional football game.

It also doesn’t mean they will WIN every game.

The goal is to get most of the calls right and post a winning season that eventually ends up winning the championship.

This is also a lot like TRADING or INVESTING. You would never expect a money manager to get every single call right.

What you want them to do is do the work, have a sound process, and then make the best decisions possible that ultimately result in your portfolio making money.

During that process, you are likely to lose positions. You may also have months or quarters where you lose money. You could have long streaks of not getting much right because some assumptions you have made are incorrect.

If you are a good trader or money manager, your process evolves, and you adjust to your mistakes.

This is EXACTLY what the Fed does, in my opinion.

They underestimated the magnitude and duration of inflation, so they raised rates. They may have had to do much more than they originally anticipated.

Eventually, though, we reached a point where inflation was under control (now), and growth stayed steady.

To me, the Fed has taken us to the playoffs for the last five years. We survived one of the most traumatic socio-economic events in human history, COVID. We did it without the economy collapsing and with overall social stability.

We have also quickly returned to steady and stable growth with rising incomes.

The Fed has done a tremendous job

in the three decades of my career.

Looking back from the early 1990s to today, we have seen huge progress as an economy, a society, and a stock market.

This isn’t BECAUSE of the Fed but rather because of American capitalism and the growth and stability inherent in our economic and social system. The citizens and companies are the players. They ultimately are responsible for the winning.

The Fed is the coach, though, and they – in unpopular opinion – have done a pretty darn good job of getting us to the championship year after year.

We think Jerome Powell and the rest of the Fed Governors are smart, and we are glad we have them working on our behalf.

We hope that you’ve enjoyed this week’s issue of HX Weekly…

Do you have any thoughts, questions, or feedback? Tell us more in the comment section or at [email protected].