Fed Heads Lose Their Head

“Read my lips: No New Taxes,” Bush Sr said in his acceptance speech for his nomination in 1988 when he promised no tax rises. As most politicians, he didn’t keep his word. In the 1992 campaign, Clinton made a devastating attack on Bush’s pledge and the rest is history.

The simple rule is: Don’t listen to WHAT people say, but HOW they say it. Already 50 years ago the Mehrabian model concluded that words only convey 7% of a message, body language accounts for 55% and tone of voice delivers 38%. That is why you should never focus on the words of a speaker since they are the least important.

A WORLD OF QUANTS AND NEURAL SYSTEMS

Automation of investment decisions is a massive growth area. In early 2020 Goldman Sachs had 920 vacancies for engineers, including technologists, quants, and data professionals. These vacancies were just under half of all jobs Goldman had on offer.

So gone are the days from over half a century ago, when in the City (financial district) in London stockbrokers drifted in around 10 in the morning, took a 2-hour lunch with gin and tonic and wine plus port with the cheese afterward. I remember it all well since I spent some time in the City at that time.

A WORLD WITH NO COMPLIANCE AND NO REGULATION

Those were the days when business was done with a handshake rather than a 250-page agreement and 10 legal advisors. There was total trust and a broker’s word was his bond. There was virtually no compliance and insider trading was legal.

Today the world of finance is totally controlled by stringent laws and regulations, ridiculously complex compliance, and 1000s of lawyers. Trust is gone and it is all driven by fear and covering your backside.

Still business probably ran more smoothly and definitely more pleasantly in the old days than in today’s ruthless business world.

INVESTMENT DECISIONS BASED ON FED HEADS TONE OF VOICE

Fifty years ago there were no neural networks and no quants. But today this area is developing so fast that soon no humans will be required. A new study by three individuals at the universities in Berkeley, Birmingham, and Reading (both UK), has found that emotions in a human speech by central bankers not just move stock markets but can be acted upon. They analyzed the voices of Bernanke, Yellen, and Powell in the press conferences after the FOMC meetings.

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