A few quick points regarding the muscular comments from Bernanke:
Friday’s NFP Employment data added NOTHING WHATSOEVER to the Fed’s understanding of the economy. Indeed, I would go so far as to suggest no single NFP adds much to anyone’s understanding. It is but one point in a long data series, and any one data point — too strong or too weak — needs to be put into context. (You can see my context in Friday’s debate with Cody).
Second and perhaps more importantly, any group dealing with uncertainty must consider what happens if they are wrong. The options facing the Fed are overtightening and causing a recession, or under tightening and letting inflation getting away from them. IMO, the latter is the far worse option, and the new noise from the Fed is consistent with that (See
here for more details).
3rd, the bond vigilantes are returning, and that is reflected in the Fed Funds Futures. The hope of a pause should be dashed for quite sometime now (Not the pause itself — just the hope of it).
Last, Bernanke may have been too concerned with consensus building outside of the FOMC; I think the entire Maria episode made him rethink that, and reminded him he is no lionger in academia. In this vein, he seems to be no different from other newbie Fed Chairs, who took some time to get their sea legs.
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UPDATE: June 5, 2006 6:35pm
Tony Crescenzi calls Bernanke’s speech "Tough Love"
http://www.thestreet.com/p/rmoney/tcrescenziblog/10289877.html
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Source:
Remarks by Chairman Ben S. Bernanke
At the International Monetary Conference, Washington, D.C.
June 5, 2006
http://www.federalreserve.gov/boarddocs/speeches/2006/20060605/default.htm
Talk is easy. Actions are what count.
By “bond vigilantes”, do you mean people are moving into bonds, or out?
most people have underestimated ben. he’s not stupid. today just hinted at the fact that he isn’t oblivious to realistic inflation fears (CPI or otherwise), or over-liquidity. so far, his only “mistake” was assuming reporters honor off-the-record comments.
he knows exactly what we are headed toward, and he KNOWS he’s screwed either way. which is why he’ll jack ’em up 25 bp later this month.
BARRY-
Could you please comment on the recently flattened YIELD CURVE. And the fact that another hike now would INVERT it again.
http://www.bondtalk.com/tyc_large.png
Pick your poison — Fed basically stated that it will stop inflation at the risk of slowing the economy – don’t be suprised to see the Industrial Cyclics, Metals and even the over-loved Energy stocks correct significantly
Stagflation, stagflation, stagflation.
I am not concerned about between now and the end of the year because I am 15% index short and 85% CDs or bonds (that I am stuck in anyway). But what happens after that? 100% 90 day CDs for years while the market grovels? Or put some into alleged “value stocks” that are just being punished for “no reason?”
I don’t think that you can make much money on either side of a market that is in stagflation, it is by definition trading sideways and I don’t care to try to do range trading.
Seems to me that one of my little hobbies is about to go away sooner than later and there won’t be much reason to get involved again until there is Some Reason to Believe.
I think a hell of a lot more of Bernanke today than I did yesterday. And less of Greenspan….no wait, that’s not possible.
The most under-appreciated tool in the FED’s toolbox is “moral suassion”. Bernanke dusted that tool off and used it very effectively today. Talking tough to affect investors inflationary expectations. Very impressive display.
I just moved all of my bonds/Securities/Treasuries into “I” Bonds.
I’m much more worried about this godsforsaken excuse for an economy, than even the “good” TV finance talking heads.
I’ve too much to lose at age 38, and NO! now is NOT the time to “buy low and hold…” Now is the time to hedge with all you’ve got against the Bush kerBooom.
This is the collapse that the UberBears have been warning about for the past 18 months…. This is NOT a “little correction.”
No TV head (who has something to sell) will steer me away from security.
I’d buy solid metal gold and silver buy weight, if it wasn’t over-inflated, and I could afford it.
–mf
Personally I was watching Bernanke’s speech and I wasn’t surprised at all. Based on everything that I’ve read on this blog and everywhere else, we knew he was going to be hawkish on inflation and make sure he errs on the side of caution.
It’s a pretty tough position to be in when no matter what you do you’re screwed. He’s walking a very tight rope and he’s being chased from both sides. We all know he has to fight off a possible recession and keep inflation low at the same time. That’s a pretty daunting task.
I find myself wondering why anyone would want to be the Fed Chair.
Bush probably isn’t happy with him, as Ben is being blamed for today’s sell off.
Bulls aren’t happy with him, even though they really havent stepped it up and shown the effort to fight off the bears.
Consumers can’t be happy with him, as they are starting to feel the pinch and will even more so in the coming months.
Real estate investors / recent buyers aren’t happy with the fact that he’s ending their party.
The list just goes on and on.
Personally, I’m glad he’s hawkish on inflation. I’ve noticed the prices of nearly everything accelerate to the upside over the last year and more recently. Blame it on energy prices, blame it on the housing boom, blame it on whatever. I’m glad we have a fed chair who is trying to keep a lid on it.
per monkeyfister:
“I’ve too much to lose at age 38, and NO! now is NOT the time to “buy low and hold…” Now is the time to hedge with all you’ve got against the Bush kerBooom.”
Settle down my boy, if you are only 38, then you still have many more significant tragedies ahead of you. If you don’t want to short this market, then I would suggest standing aside and going into 90 day treasuries or CDs- it may very well rally up to new highs over the next month, but that’s a bit like a fatally wounded whale breaching and it will surely come back down to extraordniary depths.
Be more worried about whether your job will be there in 12 months than what the wall street vampires may do over the next 6. Just my thoughts on how the world works at present.
I bonds suck. The six months rate from May 1st is 2.41%. You’re locked in for a year. If you cash in within 5 years you lose 3 months interest. I have a little in them but it is scheduled to come out and won’t be going back.
whipsaw–
I’m a GS in a pretty secure job. I’m not worried about losing it… I’m a DAV working for DoD… My job might change, but, it’s not going away.
At age 38, I AM dedicated to UTTERLY changing this gosforsakenly horrible system that is in the process of failing as a result of the imminent energy crisis (Peak Oil). I WANT to score up some cheap land, and establish a Permaculture farm. My re-localized, organic produce will be a premium in 8 years.
The current system is OVER. We’ll have a few rallies, but, the trend will ALWAYS be down from now on… UNLESS America, and the World Economy-movers pull their heads out of their collective butts, stop playing these horrible games NOW, and start the BIG, and neccesary changes required.
They don’t seem to be interested in that, and I’m not into pretending to believe in the Wall Street Fairy. I read Barry BECAUSE he’s a Bear.
I’m not interested in in the Status Quo System anymore… It’s already the Past.
See, the SAIC “Hirsch Report”: http://misi-net.com/publications/economicimpactsexecsummary.pdf (pdf)
The “Bears” aren’t Bearish enough, and their NOT looking for viable investment opportunities. Investing in another BIG Oil/NatGas Energy company is NOT the answer. But, I desperately WANT some honest answers. I’m GenX, but, GenY(bother) and GenZ (who doesn’t even KNOW what they have been born into, yet), need answers.
–mf
Gentle Ben is clearly a smart guy. But threading this needle is impossible. The intricate web of dependencies and leverage within the capital markets is now far too complex to be modeled by any single organization.
Central Banks once thought stagflation was impossible.
I think some bright and media savvy economist (Barry?) will get to coin the definitive macroecon term of this bubbly, conundrum of an era.
No one knows how to get us back into equilibrium yet. No one.
per mf:
“‘m a GS in a pretty secure job. I’m not worried about losing it… I’m a DAV working for DoD… My job might change, but, it’s not going away.
At age 38, I AM dedicated to UTTERLY changing this gosforsakenly horrible system that is in the process of failing as a result of the imminent energy crisis (Peak Oil). I WANT to score up some cheap land, and establish a Permaculture farm.”
I am not sure how you reconciled the DoD status with the rest, but if you can, I can. As far as cheap farmland goes, check out the npr.org site for a broadcast a couple of months ago about a place in one of the Dakotas that was paying people to move there.
Otherwise, my main point is that we are screwed for a while, probably years, but eventually it will get better. I consider it the stupidity cycle.
GRL,
“By “bond vigilantes”, do you mean people are moving into bonds, or out?”
Out of bonds…driving up their yield to combat inflation.
Hold on fellas. How did we go from 200pt selloff to the End of The World as We Know It?
glenn-
That was FliteTime not GRL. I think GRL knows what that means!
Yes, thank you! A little help for the newbie.
Tough Love? I call it Tough Dove! Talk is cheep Mr. Ben. But he is right to talk tough because it is easier than raising rates in the face of a housing slowdown. When he talks about “stable prices” is this Orwellian doublespeak or what! What prices have been stable over the past year? Maybe stock prices. LOL.