Trichet 3, Bernanke 0

Wild day in the pits — DJIA up 213.97, Nasdaq up 46.80 (and over its 200 day moving average!). Crude oil up over $6 intraday, closing up $5.49 to $127.90.

Blame ECB chair Trichet, whose hawkish inflation pronouncements helped tank the greenback and send oil soaring.

In the battle of the Central Bankers, its Trichet 3, Bernanke 0

UPDATE: June 6, 2008 5:48am

See this Bloomberg story,  Trichet Leads Shift From Growth to Beating Inflation

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  1. Sherman McCoy commented on Jun 5

    Why you so no like Bernie, Barry?

    You should know that it’s inappropriate to make judgments about his performance, or Trichet’s for that matter, based on short-term market reaction. In fact intra-day reaction is just about the worst yardstick there is.

    Let’s not forget that Greenspan was the “Maestro” and God-incarnate according to Wall Street until after he retired… and then the happy-happy balloons turned into iBank-eating furry monsters.

    It could just be that Bernie & Co are going to start to act like hawks themselves. If so, we will have had the benefit of a looser policy during a crunch time when Bear Stearns died, politicians sat on their laurels, and the Treasury Department was on an extended 420 break. Europe + the U.K. will not have had the same and might just be worst off in the long run for the lack of it.

    But no matter what, it is not Judgment Day yet.

  2. Barry Ritholtz commented on Jun 5

    I like BB — I think he got stuck cleaning up easy Al’s mess, and has responded rather creatively to the credit crunch.

    However, the ECB chief is totally outplaying him — at least for now.

  3. ottnott commented on Jun 5

    Okay, I see hawkish ECB –> lower dollar
    I see hawkish ECB–>lower dollar–>higher oil.

    I’m having a little trouble with the final step: higher oil–>stocks rise. The airlines were up big.

    Wait, don’t tell me. I think I understand.

    The airlines were up because the increase in oil price, while a negative, was better than expected.

  4. Eric Davis commented on Jun 5

    Talk about a stupid central banker. Trichet talking up oil $6. Even though he talked down the dollar, he only talked the dollar down 1.3%…. Moron.
    point being, he talked oil up about 4% in euro terms.

    I guess he is following the U.S. Model, doing everything he can to make Commodities more expensive.

  5. John F. commented on Jun 5

    Interesting post by John Mauldin (reprinted from Louis-Vincent Gave) suggests Trichet had better not get comfortable with his lead:

    http://www.investorsinsight.com/blogs/thoughts_from_the_frontline/archive/2008/05/30/the-problem-with-the-euro.aspx

    The gist, so I gather, is that sovereign credit spreads within Europe are widening, which will force the banks to take huge losses on all the CDS they wrote when Germany’s credit rating was magically bestowed on the whole Eurozone. When they go to raise capital, the usual suspects will be tapped out, having already given at the office (Wall Street). Expect some serious rate cuts in Euroland. First-mover advantage goes to Bernanke, although I’d be stunned if he takes credit for this diabolically clever move.

  6. DRich commented on Jun 5

    I was trading solar and watching CNBC today. I beg to differ on the oil run-up. I watched oil start it’s move and it was perfectly timed with a Congress critter state that “gaming the system” was definitely a major cause of over pricing by somewhere in the neighborhood of $40 bb, but nothing wrong or illegal was going on. My take is that was the green light for the games to resume.

  7. Jonathan commented on Jun 5

    I don’t understand why the Fed is so scared to death of the country going into a “recession” (debate on whether we are already or not is for another time). The market is supposed to operate in cycles, sometimes going up, sometimes going down. This enables securities to never be far from what they are truly worth. The current market propping is causing all kinds of havoc because stocks, futures, etc. are all prices more than they are worth. Investors were investing base on Fed decisions rather than fundamentals.

    If the market was currently based on fundamentals, would there really be ~$900/oz gold, ~$130/barrel oil, and a DJI ~12,500?

    Please note that the numbers were estimates, so actual figures may be different.

  8. shrek commented on Jun 5

    The country from the government down to consumers is broke.

  9. RichardN commented on Jun 5

    Why is this so hard to understand? Trichet couldn’t care less what oil does in response to what he says. His job is price stability (monetary). That’s it. If that causes the euro to appreciate, then either oil goes up by roughly the same amount as the dollar depreciates (in a perfect world) or it does not. If it does not, there are only two possible reasons ( aside from short term effects, supply etc). Either speculation is pushing the price, in which case the price of oil will, in the long run, revert to its true value and there’s no point in him trying to mess with it, it’s not his job (it should be someone else’s job though); or there’s a supply and demand imbalance, in which case no matter what he does the price is out of his control. Clearly, speculation is to blame for a 6% parabolic move on a 1% dollar decline.
    What would you have him do?
    Let’s say he does what you suggest and hints at lowering rates instead and that it causes the reverse of what happened today. If it’s speculation driving prices there would be some other excuse given the following day to explain a 4$ gain. This would go on until the bubble popped, only it would pop much higher because now you’d have excess liquidity in the US _and_ in Europe. Congratulations, your smart policy just screwed an additional 450 million people.

  10. mhm commented on Jun 5

    I see so many signs of unfair trade practices in various stocks I used to trade (note the past) that I have no option but stand back and watch. I won’t play the game if I don’t know the odds…

  11. J. Bridges commented on Jun 5

    “I see so many signs of unfair trade practices in various stocks I used to trade (note the past) that I have no option but stand back and watch. I won’t play the game if I don’t know the odds…”

    This is what happens when the Fed gives the lunatics the keys to the asylum. We don’t even have markets anymore. Just a big stinking casino with 2% margin rates on any garbage you want to pawn for 28 days.

    Frankly, and I hate to say this, but I’d like a big fat Black Swan to sit right Wall Street right about now.

  12. J. Bridges commented on Jun 5

    I don’t know, the more confident the bulls get, the better the odds a big fat Black Swan is going to come along and restore some balance to this Fed backed casino.

  13. don commented on Jun 5

    My take is that a big part of the oil price gain came from the performance of Walmart and Costco, which seemed to show that the U.S. consumer will continue to spend beyond his means.

  14. Steve Barry commented on Jun 5

    Jonathan,

    The Fed is not really scared of run of the mill recessions, except in that it may hurt their boss’ party’s chance at re-election. But look at what this Fed’s problems are…housing is still 40% above high levels, let alone normal levels…credit issued over the last 40 years is unimaginable…inflation adjusted Dow way above trendline, near 1929 levels. So even thought there really is no hope, the only thing they can do is try to INFLATE out of it…pay back the debt with cheaper money…re-inflate housing…inflate the Dow. The only way they can do that is pretend to be deathly afraid of a recession and lower rates.

  15. shtove commented on Jun 5

    Brilliant cartoon, except … shouldn’t the sheikh on roller skates be wobbling as he starts to tumble on the opposite side?

  16. me commented on Jun 6

    “I like BB — I think he got stuck cleaning up easy Al’s mess, and has responded rather creatively to the credit crunch.”

    BR looks likes Mr. Lacker doesn’t agree.

  17. Henry commented on Jun 8

    Thursday and Friday action seemed odd. Several points:

    1. OK, so if Eurozone interest rates go up, that’s likely to cause the dollar to drop against the euro. But wouldn’t Europe’s economy tank, lowering demand for oil? So why did oil shoot up on Thursday?

    2. Oil shoots up on Thursday and the US stocks jump up. Then oil shoots up on Friday and US stocks collapse. Huh?!?!?!

    Mofaz’s threat to attack Iran spooked people on Friday, so I guess I can understand the jump in oil prices and the drop in stock prices on Friday (plus the bad unemployment numbers, of course). But the action Thursday was strange.

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