The smell of fresh popcorn filled the room as a table of confident would-be tycoons prepared to enter the fast-paced world of real estate and finance. Each smiled and contemplated the wheeling and dealing for property, houses, hotels and GET OUT OF JAIL FREE cards.
An hour later, pleasantries and snacks long gone, the formidable traders emerged and our micro-economy changed its character. An unfortunate bankruptcy seemed inevitable for the unseasoned among us. Unsure of how this game would unfold, I surveyed the bubbling emotions of the table and decided to step-in as central banker. After all, I had been a professional Fed Watcher over the course of my twenty years in wealth management.
I quickly implemented a few minor tweaks to the rules as relied upon since 1935. Surely, a few rent-free passes around the board, lower mortgage rates and a special one-time QE program would be accepted by our participants as a fair tradeoff for a prolonged cycle of family fun. Begrudged by some, who will remain nameless, the new rules of engagement seemed to work as anticipated in our (me, myself and I) central tendency analysis. Shew…I thought to myself, I am a Maestro of Finance. *More details to follow in a paper on ambiguity aversion and non-parametric estimation during family game night: WHAT?!
Before you judge this history and the rest of the story, let us be clear that my dual mandate of fun and no tears originated from the top. Let the record show this bazooka was loaded by my wife. The tweaks forced a new set of incentive behaviors. I started to lose control as to exactly when “normal” rules would return, and the artificial nature of our “new normal” game introduced an evolution of hypersensitivities. Formerly rich, now tears slowly welled up on the face of a well-known conservative saver. As the most powerful central banker in the house, I could not reveal my own lack of confidence on how this game may end. A bead of sweat attempted an appearance on my brow as daggers shot across the table from another highly levered player who dared me to change my dovish course. I shouted out an idea as I pushed myself from the game table, “I need a bathroom break!”
Further details from my central bank Monopoly minutes shall be sealed for a time in order to digest the facts as I plan to recall them and to avoid critique of my reign over family game night. Meanwhile, The Federal Reserve Bank of Kansas City is sponsoring a symposium of “Re-evaluating Labor Market Dynamics,” this week at Jackson Hole. Prominent central bankers, finance ministers, academics, and financial market participants from around the world will convene to discuss important economic issues, implications, and policy options. The symposium proceedings include a plethora of intelligent papers, commentary, and discussion. The financial markets will clearly be focused on U.S. Federal Reserve Bank chair, Janet Yellen’s, speech and its implications for the future path of interest rates and stocks. The annual exercise is all great fun held in a majestic landscape with mountains of digital coverage generated for Fed Watchers to ponder over the weekend.
Unfortunately, market players put too much faith in the ability of humans (or machines for that matter) to legitimately map an outcome for real growth, unemployment levels, interest rates and behavioral reactions. The well-intended programs and tools unleashed by global central bankers may have produced a ratio of two new risks for every one generated reward. Aided an abetted by political dysfunction, demographic trends, geopolitics and a multitude of unforeseen variables, it is impossible for anyone to predict an exact transition from policy-induced tweaks to a self-reliant global economy. Even Dr. Janet Yellen could not have predicted the outcome of our family game night, and this is precisely why it is so instructive!
More than 275 million Monopoly games have been sold worldwide and are available in 111 countries and 43 languages. Your family and the U.S. Federal Reserve should invest in this classic econometric tool for a cost of less than $20.
Michael D. Hakerem, CFA is a leading Chief Investment Officer and Portfolio Manager utilizing custom portfolio solutions and securities analysis to help Advisors and clients meet their unique asset management needs. www.linkedin.com/in/michaelhakerem/ firstname.lastname@example.org