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Fed-Bopped
Suppose, 10,000 years ago, you lived out on the Great Plains, half your life spent under the night sky. One winter, a cometÉ then the next winter, another; this time bigger.
The comet brightens, moves from the pre-dawn sky to evening, risingÉ then one night, the moon goes dark; and as it blacks out, the wandering red star sits just above the growing moon-hole in gleaming malevolence.
What could it mean? What disaster lies ahead? Famine? Grassfire? Stampede? Sickness?
Nah. It means the Fed's going to tighten.
Thirty-nine people commit suicide, supposedly punching their tickets for a ride on a spaceship hidden in the comet's tail.
No way. The Fed did it: interest rate anxiety drove them over the edge.
Senators Sarbanes, Harkin, and Dorney can be counted on always to criticize the Fed (out of cynicism, populist zeal, and ignorance, respectively; and to whom my spellchecker refers as "Sardines, Harking, and Donkey"). "An attack on American wage earners!" "Unnecessary prevention of non-existent inflation!"
The Fed-bashing has just begun.
In any period of "irrational exuberance" in the financial markets, money flows to increasingly ill-advised ventures. A growing economy and rising markets conceal the true condition of the deals, and defer the day of atonement. The longer the bubble lasts, the more doomed schemes there are, and the more spectacular their ultimate demise.
The Fed is trying to let the gas out of this bubble slowly, and do the least possible harm, but anybody who loses money in a business deal in the next year or two is going to claim to have been Fed-Bopped.
Mercury Finance was (still is, sort of) a pioneer in making loans to car buyers with lousy credit, and fast growth and big profits made it a darling of mutual funds. Last month, Mercury announced "accounting irregularities," and its stock has fallen from 16 to 2 1/2. At the trial, defense lawyers will no doubt claim that the firm was a sound operation, and driven to collapse only by a misguided Fed.
Advanta, Inc. earned stock market fame and big profits by issuing credit cards to anyone with the strength to open the envelope. Some of these new clients neglected to send in payments -- surely the fault of the Fed for raising consumer rates -- and Advanta's stock price is struggling to hold at 27 1/2, half its peak.
PBH&G was by many measures the best-performing family of stock funds in the 1990's. Fortunes have reversed in 1997. Among the "Morningstar 500," the PBH&G Growth fund is no longer in the top half, nor top 300, nor 400; it is smack dab last, number 500, the worst performing fund. Mr. Greenspan is the likely target of extensive grumbling in the PBH&G boardroom.
Any day now, Quaker Oats will blame the Fed for its $1.4 billion loss in the Snapple deal.
The most dramatic disaster thus far is Bre-X Minerals, Ltd. Last year it announced discovery of an immense gold deposit in Borneo, and the stock became very popular, notably at Fidelity, where 7% ownership was held among 15 separate Fidelity funds.
Drilling by other companies to verify the deposit last week revealedÉ no gold, and the stock price fell 89% in one day. Also falling was Bre-X's chief geologist, Michael de Guzman, who did not survive his exit from a helicopter cruising at 800 feet. He left a suicide note, but all of his research papers were destroyed in a suspicious fire.
Rumors will soon swirl around the possible presence of Alan Greenspan on the chopper.
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