In recent weeks, I’ve learned that the catcher, next to the pitcher, is perhaps the most important position in all of baseball. The catcher is the equivalent of the Highway Patrol, CIA and FBI, all rolled up into one guy on the field. Unless the catcher proves to the other team that he is both willing and capable of throwing out those who might try to steal bases in willy-nilly fashion, the other team will steal bases in willy-nilly fashion – all the way to third. As I’ve moved from watching varsity high school games to recreational youth leagues, it’s hard not to notice the importance of the position, where youthful and weaker arms fail to earn the respect of even the slowest of base runners. The dynamics and strategy of the game change very quickly if you don’t have a man behind the hitter who carries a big stick and does so with the stamp of authority.
This dynamic is very similar to what is happening in the bond markets today. The Fed is like the catcher, but in the bond market game. Over the last three weeks, other players in the bond market have started to test the Fed’s authority in setting interest rates, sensing that Bernanke is getting soft. Would be base stealers have been stealing basis points by the fistful but today, at 2:30pm, Catcher Bernanke comes to the podium. The Fed’s language is important; it’s like a big stick and a strong arm. Bernanke needs to assure the bond market that vigilante shenanigans won’t be tolerated; if the economy is improving, yields should be able to rise without hurting stocks, but if the economy is not improving, yields will not rise for it would hurt stocks. The Fed will not hesitate to throw out anyone whose actions would threaten the budding confidence in our economy. They will lose that game.
Normally, the Fed is just the umpire in the capitalist game. But in the last few seasons, the umpire had to join the game and in ways became the catcher to keep the capitalists from getting out of control. Those who decry government involvement in the capitalist game fail to realize that an umpire is a very real part of that game. If a team manager gets out of control, he will be tossed. If a capitalist base runner tries to steal a base, he needs to be reminded that he might be caught. Both sides of the aisle have screwed up the game over the last few seasons. While the Fed may be suggesting in recent weeks that it may step back from the role of catcher, those who choose to test their authority do so at their own peril.