Grading Bernanke's Fed

Washington Post columnist Neil Irwin stopped by to discuss his book, The Alchemists: Three Central Bankers and a World on Fire. It's a great read on the history of central banks, including how they responded to the financial crisis and the challenges they face in the future.

Popular opinion generally has plenty to say about the current chairman of the Federal Reserve, but hindsight is keen and often vindicates -- or vilifies -- key players after the fact. In this video segment, Irwin is hesitant to qualify Ben Bernanke's legacy just yet. A full transcript follows the video.

Morgan Housel: You write in the book about how hated Paul Volcker was back in the '70s, when he was raising interest rates to slay inflation, which almost purposely sent the economy back into recession. You had all these homebuilders were sending him two-by-fours in the mail. You had auto dealers sending him keys to unsold cars in the mail. He was really hated at the time.

In hindsight now ,we look back at him, I think broadly, as saving the economy -- one of the better Fed chairmen.

Then on the opposite spectrum you have [Alan] Greenspan, who, back in the '90s and early 2000s, people loved him more than anyone. He was responsible for the boom, and they loved him. They stopped him on the streets to thank him, and now we look back at him as one of the people responsible for the crash.

My question is, how do you think history will judge Bernanke's actions in 2008?

Neil Irwin: The things you just described have made me modest in my ability to predict and know what the ultimate historical legacy of Ben Bernanke will be.

Look, I think fundamentally Ben Bernanke has done a marvelous job the last five years. Yes, they missed a lot of stuff heading into the crisis. They didn't see beyond the horizon of how bad it could be. Yes, they shouldn't have let Lehman Brothers fail. That set the stage for all that followed.

But in their speed, their creativity, and his willingness to analyze the world as it is and find ways to use his limited tools to try and keep the economy afloat, I think he has a lot to be proud of.

But, again, for exactly the reasons you're describing, I think his ultimate legacy is something that can't be written for quite a few years to come. If his successor can get through these next few years and do an exit that's as skillful as the entry into all this easy money and bailouts and all the stuff they did, then I think we can say Ben Bernanke is a great historical figure.

Until then, he's a guy who made some hard decisions in a hard time and looks so far, so good, but I think we have to reserve judgment until we know more, and that'll be a few years.

Housel: On that same point, Ben Bernanke is probably the most criticized person in America for the past five years. That may be a stretch, but pretty close.

On a personal level, how does he take that? Does he ever doubt himself? Is he pretty stubborn in his views that he knows he's right, or does he take criticism pretty seriously?

Irwin: I think he takes certain criticism pretty seriously. He had to learn this whole thing of becoming a public figure, and having to develop the thick skin you need if you're going to be a public figure who people are criticizing all the time.

In a way, he was the accidental Fed chairman. He only came to Washington in 2002. He got a call from Glenn Hubbard, who was George W. Bush's economics advisor, saying, "Hey, would you like to come to Washington and be a Fed governor?"

It was right after 9/11; it was kind of a time of patriotism. Ben Bernanke said: "OK, yeah. It seems like a good way to do a couple of years of public service, see what it's like." Four years later, through a kind of random series of events, he ends up chairman of the Federal Reserve, one of the most powerful people on Earth.

Two years after that, this tremendous crisis happens that turns him from this kind of "man in the gray flannel suit" -- he did not want to be a flashy Fed chairman. He doesn't like going to fancy parties in Georgetown. He prefers to lay low and go to a Washington Nationals game with his wife.

But the crisis thrust him into this prominent, celebrity kind of role, going on 60 Minutes, and all this stuff he's done. But I think it's not a natural fit for his personality. I think through that process, he's had to evolve the thicker skin to get used to people complaining about what he does, and criticizing every move he makes.

I think he's much more savvy now than he was when I started covering him in 2007. In 2007 I think he was not as politically savvy; I think he was not as market savvy. I think he was not as accustomed to this experience of being a public figure who people are going to complain about all day long.

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The Dow Jones Industrials (DJINDICES: ^DJI  ) closed at another record high today, climbing 52 points in a broad-based advance that saw new all-time highs from the S&P 500 as well. In the latest in the ongoing push-and-pull among various members of the Federal Reserve's Federal Open Market Committee, today's comments swung the pendulum back toward the camp that favors continued accommodative monetary policy that includes further bond purchases. That had the predictable Pavlovian reaction from investors, helping the market recover from early losses even with New York Fed President William Dudley's reminder that the next move from the Fed could result in more bond purchases, indicating continuing concerns about the overall health of the U.S. economy.

In the context of a longer-term market rally, it's important to take daily movements on stocks with a grain of salt. For instance, as I pointed out earlier, Travelers (NYSE: TRV  ) dropped more than 2% today as the company faces the financial fallout of a deadly tornado in Oklahoma. Yet while drops like these almost always happen after catastrophic events, claim payouts are a natural part of Travelers' business. Moreover, the more important long-term drivers of Travelers' future growth are likely to come from the fate of the bond market, and so Travelers investors should keep a close eye on the Fed to see if further interest-rate rises for bonds lead to improved investment returns for the insurance company's portfolio.

Best High Tech Companies To Invest In Right Now: (OFSS.NS)

Oracle Financial Services Software Limited, together with its subsidiaries, provides information technology (IT) solutions and knowledge processing services to the financial services industry worldwide. The company offers Oracle FLEXCUBE, a banking product suite for consumer, corporate, investment, mobile and Internet banking, consumer lending, asset management, and investor servicing, including payments. Its products comprise Oracle FLEXCUBE Enterprise Limits and Collateral Management, which enables centralized collateral management, limits definition, tracking, and exposure measurement; Oracle FLEXCUBE Private Banking solution that offers a wealth management portal, a customer interaction tool, and portfolio management capabilities for private banking; and Oracle FLEXCUBE Investor Servicing, a process enabled transfer agency and investor servicing solution. The company also offers Oracle Financial Services Analytical Applications for enterprise risk, performance manageme nt, regulatory compliance, and customer insight; consulting services in the areas of business transformation, risk and compliance, program management, IT architecture, IT governance, and process improvement; and application services for banking, securities, and insurance. In addition, it provides technology services comprising conceptualization, design, evaluation, implementation, and management of IT infrastructure for financial institutions; business process outsourcing services ranging from back office work to contact centre services for the banking, capital markets, insurance, and asset management domains; and support services. The company was formerly known as i-flex Solutions Limited and changed its name to Oracle Financial Services Software Limited in August 2008. The company was incorporated in 1989 and is based in Mumbai, India. Oracle Financial Services Software Limited is a subsidiary of Oracle Global (Mauritius) Limited.

Advisors' Opinion:

• [By Goodwin]

  The resurgence of the US will bring back big-time technology spending and Indian companies stand to gain. However, mainstream software services companies are highly priced. Oracle Fin is one of the few tech stocks that still have some headroom for appreciation.  When US banks invest in technology to comply with new regulations, Oracle will rake in the moolah. 

Best High Tech Companies To Invest In Right Now: ANSYS Inc (ANSS.O)

ANSYS, Inc. (ANSYS) develops and globally markets engineering simulation software and services used by engineers, designers, researchers and students across a range of industries and academia, including aerospace, automotive, manufacturing, electronics, biomedical, energy and defense. The Company distributes its ANSYS suite of simulation technologies through a global network of independent resellers and distributors (collectively, channel partners) and direct sales offices in global locations. The Company�� product portfolio consists of ANSYS Workbench, multiphysics product, structural mechanics, fluid dynamics, explicit dynamics, electromagnetic, system simulation, simulation process and data management, academic, high-performance computing (HPC), geometry interfaces, meshing and Apache design low-power electronic solutions. On August 1, 2011, the Company acquired Apache Design, Inc.

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Structural Mechanics

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The Company�� fluid dynamics product! s! uite offers modeling of fluid flow and other related physical phenomena. Fluid flow analysis capabilities provide all the tools needed to design new fluids equipment and to troubleshoot already existing installations. The fluid dynamics product suite contains general-purpose computational fluid dynamics software and specialized products to address specific industry applications.

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ANSYS Engineering Knowledge Manager (ANSYS EKM) is a solution for simulation-based process and data management! . A! NSYS! EKM ! provides solutions to all levels of a company, enabling an organization to address the issues associated with simulation data, including backup and archival, traceability and audit trail, process automation and intellectual property protection.

Academic

The Company�� academic product suite provides a portfolio of academic products based on several usage tiers: associate, research and teaching. Each tier includes various noncommercial products that bundle a range of physics and advanced coupled field solver capabilities. The academic product suite provides entry-level tools intended for class demonstrations and hands-on instruction. It provides flexible terms of use and more complex analysis suitable for doctoral and post-doctoral research projects. The Company also provides a product suitable for student use at home.

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The Company offers geometry handling solutions for engineering simulation in an integrated environment with direct interfaces to all CAD systems, support of additional readers and translators. It also offers an integrated geometry modeler focused on analysis.

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Creating a mesh that transforms a physical model into a mathematical model is a critical and foundational step in almost every engineering simulation study. The Company�� meshing technology provides a means to balance these requirements, obtaining the right mesh for each simulation in the most automated way possible.

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Coffee Holding Co., Inc. engages in manufacturing, roasting, packaging, marketing, and distributing roasted and blended coffees in the United States and Canada. The company offers three categories of products: wholesale green coffee, private label coffee, and branded coffee. The wholesale green coffee product category consists of unroasted raw beans imported from worldwide that are sold to roasters and coffee shop operators in approximately 90 varieties. The private label coffee product category includes coffee roasted, blended, packaged, and sold under the specifications and names of others. As of October 31, 2010, the company supplied private label coffee under approximately 34 different labels to wholesalers and retailers in cans, brick packages, and instants in various sizes. The branded coffee product category comprises coffee roasted and blended to the company's own specifications and offered under its seven brand names in various segments of the market. The company also offers other products, including trial-sized mini-brick coffee packages; specialty instant coffees; instant cappuccinos and hot chocolates; and tea line products. Its coffee brands include Cafe Caribe, S&W, Cafe Supremo, Don Manuel, Fifth Avenue, Via Roma, IL CLASSICO, and Entenmann. Coffee Holding Co., Inc. markets its private label and wholesale coffee through trade shows, industry publications, face-to-face contacts, internal sales force, and non-exclusive independent food and beverage sales brokers, as well as through its Web site, coffeeholding.com. The company was founded in 1971 and is headquartered in Staten Island, New York.

Saks Investors Make Out Like Inept Bandits

For a company that is putting up solid sales growth, has a great brand, and has seen its stock price rise more than 40% in the last 12 months, Saks (NYSE: SKS  ) didn't demand much of a premium. Hudson's Bay, the operator behind Lord & Taylor, picked up Saks for just $16 per share, representing a 4.5% bump to Friday's closing price.

Why is this good news?
It seems like an odd move from Saks' point of view. Hudson's Bay posted a loss in its last quarter, while Saks put up a nice profit in its most recent period. Hudson's Bay also has almost no cash on hand to finance the transaction. The business had about $27 million in cash at its last reporting in May, and it's going to finance the acquisition with equity, debt, and secured notes.

You know what, speaking of the word "acquisition," let's call this what it really is -- a merger. Saks has a larger market capitalization, and while Hudson's Bay runs substantially more locations, it only barely edged out Saks in total revenue last quarter.

Management on both sides was eager to spin the big win for Saks shareholders. The closing price represented an "approximate 30% premium to the May 20, 2013 closing price, the day before media speculation began." So really, Hudson's Bay was making Saks an offer it would have been crazy to refuse.

Never mind that Saks put up a 5.9% increase in year-over-year comparable sales last quarter, or that its operating income margin was 8.6% in the same quarter. Surely the business will find some great inspiration from Hudson's Bay, which managed a 4% increase in comparable sales -- with Lord & Taylor experiencing a 1.4% decline -- and a loss at the operational level. Maybe some of that difference is that Saks is managing $436 of annual revenue per square foot, while Hudson's Bay's combined brands are running under $200.

So why is this good news?
The benefit for Saks is, actually, that Lord & Taylor isn't as good. Saks is still managing some stores in those malls that no one goes to anymore -- you know, the 90% hat stores mall that still has that cookie place -- and it's expensive to break out of all the leases and shut the places down. Now, it can swap out a lower-end store with a fancy name for the Saks locations, taking less of a hit on the revenue and cost sides.

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The combined company could also create a real estate investment trust, using the flagship locations under its umbrella. Saks' New York City flagship alone is valued at more than $800 million. So there's plenty of room for investors to be hopeful about new real estate opportunities.

But what I think is the best bit of news is that Saks gets 40 days to seek better bids. If I were running the place, it would be selling chocolate and board games -- oh, and I'd go look for a better company to join up with. Hudson's Bay may be the best offer out there right now, but it's simply uninspiring. Saks management can -- and should -- do better.

Saks isn't the only retailer on the cusp of a big change. In fact, the entire retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

Why the Chevy Spark Is a Surprise Hit for GM

The Chevrolet Spark is the smallest model in GM's U.S. lineup, but it has turned out to be a big hit. 

General Motors  (NYSE: GM  ) may not have known what to expect when it rolled out its tiny Chevy Spark to U.S. customers last year, but it has to be happy with the results. The Spark has proved to be a hit, exceeding sales expectations and drawing plenty of younger buyers into Chevy showrooms.

How did GM manage that, when its prior small cars were mostly cheap-feeling and slow-selling? In this video, Fool.com contributor John Rosevear looks at the strategy behind GM's little hit – and at why the General has suddenly become a strong player in the area it long neglected, small cars.

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