Wall Street's Guardian Angel
Jude Wanniski
February 26, 2001


Memo To: Wayne Angell, Bear Stearns Chief Economist
From: Jude Wanniski
Re: You are the New Guru!!

WOW!! You are suddenly FAMOUS!!! Just a few words from you on Friday afternoon and the stock market LEAPS out of its ditch and rockets forward. There are rarely such close connections, Wayne, which is why every wire service and financial newspaper that I saw, including the NYTimes gave you the credit. And all you did was say you thought the chance that Alan Greenspan will cut the fed funds rate by another half point this week had climbed to 60% from the 40% you saw just a few days ago. There is all this talk out there by people who think Greenspan will raise rates to fight “inflation” because energy prices are high. You are one of the few Wall Streeters who know energy prices are high now because the Fed goofed in 1997 by starving the economy of liquidity, which caused the paper dollar to become scarce relative to commodities, with gold leading the way and oil prices following. For almost two years the world energy industry stopped its investments, unable to justify any with oil at $10/bbl. It will take years for the world energy industry to catch up with its development. So many market analysts still are confused into thinking there is inflation out there when you know we are still in the deflation soup that we slipped into in 1997. The market itself is not fooled and I believe appreciated your commentary on Friday. If Greenspan would mention the low gold price, we would see an even greater response. Don’t you think?

The market, of course, well knows you were not only a Fed governor during Greenspan’s early tenure, but also that you and he watched the price of gold closely as a sign of incipient inflation. That may be why the NASDAQ shot up so far so fast after your remarks, which included the observation that the two half-point cuts in the funds rate in January did not cause the price of gold to rise at all. If there is any chance at all that Greenspan actually will cite the gold price the way you have, we soon may be out of the monetary deflation you and I know exists, and the greatest beneficiaries will be the high-tech babies on NASDAQ, which are most in need of the mother’s milk of capital.

This is all important stuff, Wayne. The whole world is depending on the U.S. to get its monetary policy straightened out. You took a big step in that direction on Friday. Keep flapping those golden wings. You’re now Wall Street’s guardian angel.