Bernanke’s Head Fake Sends Stocks Soaring

[Crewleader]

Weekend Edition September 20-22, 2013


Not Convincing
Bernanke’s Head Fake Sends Stocks Soaring

by MIKE WHITNEY


Fed chairman Ben Bernanke shocked the world on Wednesday when he announced there would be no change in the Fed’s $85 billion-per-month asset purchase program dubbed QE. The announcement sparked a buying frenzy on Wall Street where all three major indices shot to record highs. The Dow Jones Industrial Average (DJIA) climbed 146 points to 15,676 while the S & P 500 logged another 38 points to 1,725 on the day. Bonds and gold also rallied big on the news with the yield on the benchmark 10-year US Treasury dipping sharply to 2.69 percent (from 2.85 percent the day before) while gold rose more than 4.1 percent to $1,364. The US dollar was hammered savagely on the news, dropping to a seven-month low against a basket of major currencies. According to Reuters, the buck “saw its biggest one-day slide in more than two months” and “has fallen to levels not seen since well before Fed Chief Ben Bernanke first floated the idea of reducing the stimulus in May.”

Bernanke attempted to justify his reversal (some are calling it a “head fake”) on continuing weakness in the economy, particularly high unemployment and tightening in the financial markets. He also implied he was worried about the possibility of a government shutdown and the impact that would have on the anemic recovery.

http://www.counterpunch.org/2013/09/20/bernankes-head-fake-sends-stocks-soaring/

[Benton D Struckcheon]

1. Manny Goldstein, if you're around,

this is why monetary policy is ineffectual:

The swapping of Treasuries for bank reserves does not create a transmission mechanism for increasing demand that leads to additional hiring.

...which is why I really don't care who winds up heading the Fed. Means nothing. The real action is in fiscal policy, which means the real economic question is whether we can get a House of Reps that is Democratic. With the current Tea Party Republicans in there, we're going to be stuck in neutral indefinitely.

[Demeter]

3. but the right Fed Reserve chairman can put the fear of God in the Congress

since there is no leadership in the White House, or the Legislature (except for newbies like Elizabeth Warren, Alan Grayson, Whitehouse, Sherrod Brown, a bare handful against entrenched dimwits and corrupt carpetbaggers).

[dkf]

2. As compared to Friday?

Market Schizophrenia: Bernanke And Bullard Feed Volatility On Taper Uncertainty As Stocks Go Wild

Schizophrenia took hold of equity markets this week, as investors were completely thrown off by Fed Chairman Ben Bernanke’s decision not to taper quantitative easing this week, followed by an indication by St. Louis Fed Chief James Bullard that tapering could very possibly be in the cards for October. The Dow essentially wiped out its post-FOMC gains after a massive selloff on Friday to close a rollercoaster week.

After several months of relative calm, uncertainty is back in full force. Ahead of a fiscal showdown in Washington between President Obama and Speaker Boehner, equity markets went haywire on Friday. The Dow capped off a session in which it essentially only went down, falling 185 points to 15,451. Gold and oil fell, as did the yield on Treasuries, while the U.S. dollar gained.

It’s difficult to pinpoint a specific cause for Friday’s declines, but it’s clear that Bullard’s statements added to the confusion. While everyone and their mother expected Ben Bernanke to cut back on the Fed’s monthly pace of asset purchases, the Chairman fueled a massive rally on Wednesday deciding to keep the same level of accommodation, given fears over higher mortgage rates, the debt ceiling debate, and a slower economy. The Dow rallied more than 200 points.

But by the end of the week, the Dow had given up all of those gains as investors recalibrated their portfolios to take into account the heightened level of uncertainty. After telegraphing it for months, and getting market participants to believe it, the Bernanke Fed backtracked on its intention to taper in September. Bullard explained why: decisions regarding QE are data dependent and, in the context of lowered GDP and inflation outlook, it wouldn’t make sense to reduce stimulus. “Normally, the Committee would not want to reduce policy accommodation in this situation,” he said.

http://www.forbes.com/sites/afontevecchia/2013/09/20/market-schizophrenia-bernanke-and-bullard-feed-volatility-on-taper-uncertainty-as-stocks-go-wild/

[BadgerKid]

4. The market is too busy second-guessing the Fed.

Bernanke is following what he's always said -- that decisions will be based on the data. Why does there always have to be a hidden message?