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The Kansas Hick Taught Me What The Fed Should Do

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What is going to happen next?
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I would shut down every distraction whenever he spoke. He spoke with the nasal flat accent of a Kansas farmer.

He was born in Liberal, Kansas and became one of my favorite economists.

He didn't speak much when he was a Fed governor but talked a lot when he became the chief economist for Bear Stearns. That is where I got to know him.

Wayne Angell had a very clear idea of what the Fed should do and a clear method for analysis.

At the time, I was a huge client of Bear Stearns. They had the best desk for finding stock so I could short it.

Plus they had Angell. I was fortunate to get to know him through being a big client.

He had a simple method for determining what the Fed should be doing. I wish they were doing it now. Let's take a look at his method.

Boiled down, he would look at the price of gold and the dollar. Gold represented the value of the dollar within the US and the trade weighted dollar was the value external to the US.

Gold was a proxy for raw material prices and therefore was a leading indicator of inflation and the economy. The dollar was important for external trade and money flows.

So here is what he did. I'll use the current situation as an example.

Right now, the dollar is strong and gold is weak. If gold is weak and the dollar strong, then the Fed is too tight and should ease!

You may say, but inflation is high! They have to keep tight!

Ah, but the genius of Angell is that the dollar and gold lead the economy and inflation by 6-12 months so they are saying that inflation will be coming down! So NOW is the time to start easing to counteract the recession the Fed is causing.

Angell's simple method keeps the Fed in front of the economy and inflation while the Fed for years has been guiding the economy through the rear view mirror and, as a result, has create boom and busts that, as Jerome Powell says, create pain in the economy.

I've ranted about this before but Powell's job is not to create conditions where he has to administer pain to solve. His job is to make sure the economy doesn't overheat or get into a recession.

Angell's model would cause the Fed to now lurch but keep a steady hand on the tiller.

Angell is still alive but getting on in years.

I use the Angell model in my own investing.

You can see me use in the Stock Navigator program where I use it every day to show you what will happen and how to make money on it.

Click here for more info on the Stock Navigator program.

Good simple trading,

Courtney Smith

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