The long awaited speech from Fed Chairman Ben Bernanke at the Jackson Hole Summit has come and gone without any definitive action being announced. However, the Helicopter Man let it be known that he believes the first two rounds of QE were a rousing success.
Once again he promised that the Fed stands ready to act if the economic conditions or data warrant it. As usual, the markets, hungry for more of the spiked punch bowl, wasted no time in casting off their initial disappointment with a huge round of indiscriminate buying directed at the risk asset categories.
Gold blew through tough overhead resistance at $1680 and looks like it now has a clear path towards the magical $1700 level. Silver too punched through resistance and looks like it wants to make a run at $32.50.
My own personal view of this is that Bernanke is engaging in a round of verbal intervention, aka, jawboning the markets higher to aid his Boss' re-election efforts. He knows full well that he is going to be replaced if Romney wins. Chatter is now that the FED will proceed with the next round of QE at their upcoming September meeting.
As I have stated repeatedly on this site, why do the actual bond buying if you can achieve the same results by merely promising or strongly suggesting that you are going to do it. This is what he has been doing for a good portion of the last two months.
The S&P 500 is trading just off its peak, interest rates on the long end are low, the Ten Year is trading below 1.6%. So what in the heck would they accomplish by pushing rates any lower than they already are? The problem is not that money is cheap to borrow; it is that no one is borrowing it or the banks are not lending it because there are no jobs! The velocity of money graph shows a line heading straight down. Why in the hell do these money masters believe that another round of manufactured bond buying is going to reverse that course?
Contrary to Mr. Bernanke's lavious praise of QE and its supposed success, I believe it has been a colossal failure and enormous waste of future taxpayer money. Over $2.5 TRILLION has been spent on bond buying and what do we have to show for it except an expanded Fed balance sheet and a currency that was nearly tanked as a result. The only thing that saved the Dollar from this debacle was the fact that the Euro was even worse. Were it not for that, the US Dollar would have cratered below the 72 level and with it, the way of life for most Americans.
One casualty of this madness however will the average American middle class citizen who will watch helplessly while their food, energy (gasoline and heating oil) costs soar ever higher while their wages remain stagnant. If I did not know better, I would swear that these arrogant elitists are determined to destroy what is left of the shrinking middle class in order to appease their overlords on Wall Street, who want the funny money injected - long term consequences be damned.
The "Master and Commander" Bernanke has once again demonstrated his adept ability to manage markets by leading the Algos with a meatball on a stick.
ReplyDeleteWho else could levitate both stocks and bonds at the same time while 1) doing absolutely nothing but jawbone, and 2) racking up $16 trillion in deficits, and 3) containing inflation expectations.
Nobody.
Yes, gold is up and so is the CRB Index. But who cares as long as the 10-yr. Treasury is at rock bottom 1.6% range and the S & P 500 is hovering near 3 1/2 year highs? Led by retail stocks?
Right now, we are experiencing "Financial Nirvana":
a) Interest rates crashed to 60 year lows
b) Stocks skying despite horrific economies in Europe and China
c) Retail stocks hitting all time world record highs despite record numbers on food stamps, many still jobless
d) TIP spread is pricing in less than 1% annual inflation for the next 10 years!!!
Hands down, this is the most extraordinary financial feat of all time, it will be discussed at Harvard and Stanford business schools for the next 75 years.
How the market reacts to the September meeting if it is just more jawboning will be very interesting to see.
ReplyDeleteWhy blame Bernanke? If he knows he can achieve something just by talking even though he has little intention of *doing* anything, I sure can't blame him.
ReplyDeleteThe folly here is in the markets. If the markets are dumb enough to fall for Bernanke's jawboning, then we should be blaming them for whatever ills befall Joe Sixpack due to higher commodity prices as a result of (likely false) QE hopes, not Bernanke. If Bernanke knew the markets would do nothing if he promised nothing, he wouldn't try to jawbone them in the first place.
I agree with Rich above, it'll be interesting to see how the markets react to no action in September.