April 16, 2010 – Will Obama Pack the Federal Reserve Board with Doves?

Featured Trades: (OBAMA'S BUDGET PLANS), (TBT)

3) Will Obama Pack the Federal Reserve Board with Doves? There is one decision which Obama has to render soon which no one seems to be focusing on. The president has to appoint three Federal Reserve governors to fill empty seats, the most since President Franklin D. Roosevelt faced the same task in 1935. Obama's choices in making these appointments rank only second after his selection of the new Supreme Court justice in importance for the country, the economy, and your portfolio. The betting is that he will pick three monetary doves who will keep interest rates low longer, continuing the steroid injections of free money for the economy. This would create enough bubbles to make Obama's re-election in 2012 a layup. They will be more activist, consumer friendly, and in favor of stricter regulation of the financial sector. The ghost of libertarian Ayn Rand will no longer be welcome on this board. That's why you are hearing almost daily rumors of the appointment of noted dove, Janet Yellen, president of the San Francisco Federal Reserve, as a future vice chairman. Focusing only California's structurally weak economy, how could you be anything but dovish? The FBI is said to be conducting background checks on two other doves, MIT economist, Peter Diamond, and Maryland regulator, Sarah Bloom Raskin. Conservatives would much prefer to see monetary hawks on the board who will raise interest rates faster and higher, heading off inflation and propping up recently invigorated Uncle Buck, and keeping new regulation at bay. The 800 pound gorilla in the room is that if Obama takes the dovish path, the dollar's current strength will end, resuming its 220 year downtrend. The big question then becomes, will the Chinese and other sovereign funds puke their existing dollar and Treasury bond holdings?  Alas, another road leads to using this dip to buy the TBT.