Our 13th annual winter client conference, by most accounts, was the best we’ve ever had. As usual it was off-the-record, but within the ground rules of not quoting anyone present, I think it appropriate to record that the Nation of Islam’s Louis Farrakhan was the star. He stayed the weekend, to hear the presentations of Chinese Ambassador Li Daoyu, UN Ambassador Bill Richardson, Jack Kemp, Senator Chris Dodd [D-CT], Senator John Ashcroft [R-MO], Rep. John Kasich [R-OH], and Bob Novak. He also surprised the attendees by his willingness to meet with them singly or in groups during the afternoon hours and by his openness in inviting the most difficult questions. He spoke for 50 minutes on Saturday morning and answered questions for another 45. The applause he received was the most sustained in the history of these events. Of the several Jewish couples in attendance, there was uniform agreement on what I have been advising for the last several months -- that he seems a more complex and likeable man than they expected. In his remarks, Novak called him “a work in progress,” at age 63, and had him as guest on the "Evans&Novak" CNN show this past weekend where he made a similar impression.
There is still clearly a rage in him reflecting the grievances of his vast constituency. The success of the Million Man March of October 1995, though, has clearly given him a different perspective, one open to new ideas on the root causes of those grievances, and less on conspiracy theories. It is this basic change that has led him to try again to seek reconciliation with the Jewish community -- as a prerequisite to bridging the wide gulf between blacks and whites generally. He made it clear, though, that he will not fall back into the paternalistic relationship the Jewish community has had with the black community during the last century. He is ardent in his willingness to discuss any grievance of religious or secular Jews, but not if he is first asked to do penance for anything he has said or done in the past. He seeks man-to-man discussions -- which is how President Carter brought together Anwar Sadat and Menachim Begin -- in which Jewish leaders set no pre-conditions before they get in the same room with him. The conferees in Boca Raton seemed most impressed with his reasonableness in recounting the history of how the Nation of Islam and Jewish political organizations became locked in combat -- dating from Jesse Jackson’s 1984 presidential campaign, when Farrakhan says he was first unjustly labeled a “Black Hitler.”
Considerable skepticism remains, I must say, as conferees wonder if they might have been taken in by his rhetorical powers. In his Q&A session, he was challenged by Senator Ashcroft on the issue of separation, for example. When I discovered that Ashcroft was not satisfied with Farrakhan’s answer, I asked both if they would be willing to sit together at our Saturday night dinner to hash things out. Ashcroft, who had been governor of Missouri and once the roommate of Justice Clarence Thomas, has just taken the chairmanship of the Foreign Relations Committee on Africa, and at least some of the dinner talk they devoted to Africa -- where Min. Farrakhan personally knows nearly every head of state. I must mention as well that when UN Ambassador Richardson spoke, in the Q&A Farrakhan whimsically offered his assistance in dealing with the rogue nations of the Islamic world -- to which there was no response. Richardson and Kemp were on such tight schedules they did not have even a moment with Farrakhan. Rep. Kasich and Senator Dodd were there long enough to at least shake hands. Dodd opened his remarks by congratulating us for having invited Min. Farrakhan with the intent of encouraging a process of reconciliation. Of all the speakers, Min. Farrakhan clearly enjoyed John Kasich the most, three times standing to applaud Kasich’s impassioned statements on the interference of government in our lives. He noted that with people like Kasich, and Kemp, in the Republican Party, there may be a brighter future for the GOP in the black community. Given the ground rules, that’s about all I can say.
FEDWATCH: With gold falling back below $360 today, that market may be betting that when Alan Greenspan appears at tomorrow’s follow-up hearing on the House side, he might try to undo some of the damage he inflicted last week in his talk before Senate Banking. It is true that Greenspan was expressing broad concern with U.S. financial markets discounting for an unduly low level of risk. His primary worry, however, was clearly with an equity market that he believes has come unhinged from realistic expectations of future income streams and may be a precursor of inflationary pressures. We seriously doubt that he was comfortable with signs of a sharply higher risk to capital formation showing up in the response of bonds and gold.
In particular, the gold price surge of nearly $10 per ounce, to more than $363, in the two days following his Wednesday appearance could not have been welcome to Greenspan. He surely meant his testimony to enhance confidence that the Fed will remain ever-vigilant against threats to the currency. As Greenspan well knows, a rising gold price indicates anything but confidence in the currency. The problem is, the “risks” he identified -- an increase in worker security which may lead to wage gains as well as a briskly rising equity market -- are in fact not threats at all, but manifestations of an economy expected to yield sizable productivity improvements going forward. From the market’s perspective, a far greater threat is that the chairman of the world’s most important central bank would jeopardize these constructive developments in an ill-considered and ill-timed rate-hiking exercise. Despite Greenspan’s warnings about a possible tightening (which could be expected to increase the scarcity of liquidity), the gold rise indicated a reduced demand for dollars relative to their availability. The initial effect of Greenspan’s sabre-rattling induced the marginal dollar holder to prefer the relative security of a real asset; in other words, it raised inflation expectations.
If Greenspan believed his remarks last week would have assisted bonds and gold, even if he intended to cool equities, he will try to adjust his commentary tomorrow. He can only do so by giving the markets a better indication of what might cause him to support a “pre-emptive strike” against inflation. If such a “strike” causes the gold price to shoot up and the dollar to fall on the foreign-exchange market, he would know he had blundered as badly as he did last week. To get back on track, he has to advise the markets as he had been doing in earlier years that he does look to gold and the dollar/yen/DM rates for the clearest signs of incipient inflation. If there is no such signal tomorrow, we would have to conclude that there has been erosion in his price rule policy orientation. If that’s the case, then the higher risk to capital witnessed in the aftermath of his Senate testimony will be no fleeting phenomenon.