If Ben Bernanke trips and falls in the forest and knocks himself unconscious, but no one is around to hear it, do the markets still go up?
It appears the answer is yes.
Last Friday, Fed Chairman Ben Bernanke gave his much anticipated Jackson Hole, Wyoming speech. Much of the world thought he would unveil his latest QE scheme, as this is where he unveiled QE2 in 2010. He did no such thing. He did exactly what we had forecast… nothing.
Yes, he reiterated that the Fed has “unconventional tools” that it can use to fight a falling economy. But that’s an idiotic statement. Is that like having “unconventional weapons” in war? If every central bank has the same stupid tools, meaning the ability to print money to buy whatever they want, then are the tools unconventional? But I digress…
Yes, Ben Bernanke told the world that the U.S. economy remains an enigma. For all of the central bank efforts, we remain mired in poor economic conditions. GDP growth is sluggish (to say the least) and unemployment is alarmingly high even after repeated attempts to address it.
The world, it seems, is simply not cooperating…
Of course Congress bears much blame. On this point, and perhaps only this point, we completely agree with Ben. Our legislators, the ones ELECTED – unlike Ben Bernanke – to address what ails the nation, have done nothing but make matters worse. The looming fiscal cliff is completely manmade, one stone at a time, by Congress.
Bernanke called Congress out again in his speech, pointing out that monetary policy is but one approach to revitalizing the U.S. economy, and there should be other avenues used.
Finally, Fed Chairman Ben Bernanke told the world that his policy initiatives have obviously – obviously! – been effective. On this point too, we agree with him, but not in the way he means.
The Fed thinks they’ve saved us from certain calamity. They’ve halted the complete and utter breakdown of all things financial. Without them, we would all be huddled around open fires in caves, talking about what life used to be.
In our view, the Fed simply bypassed the sometimes harsh, but always effective, free-market mechanisms that would have pinned the blame and losses of our financial industry on those who wrought the damage.
The Fed didn’t save us. It chose to steal from us – savers and other responsible individuals and organizations doing the right thing – to shower money on the exact people who caused the problems.
None of this seems to matter much to Ben Bernanke. When he spoke, he said nothing, and the markets melted… up.
We are now on high alert. The Fed Chairman might not have outlined QE3 in this speech, but he did speak openly and often about how the group stands ready to act.
On September 6, the European Central Bank (ECB) has a meeting.
On September 7, the Bureau of Labor Statistics releases its latest unemployment report.
On September 12, the German courts rule on the legitimacy of German participation in any large, euro zone bailout.
On September 13, the Fed has its regularly scheduled meeting. It is at this meeting, right before the beginning of third quarter earnings season, that we think the Fed will hit the markets with QE3.
While the long term effects will be nothing at best, and negative at worst, expect at least a short-term pop, which everyone will hear.
Ahead of the Curve with Adam O’Dell
Who Loves Bernanke More: Gold – GLD or Stocks – SPY?
Ben Bernanke’s mouth spurred stocks higher. But it also sent gold straight up.
While S&P 500 futures – SPY – were up about 0.75% on the day, gold futures – GLD – were up nearly three times that after gaining 2%.