"HEY! DIDN'YOU GUYS GET THE POINT? WE'RE GOING TO SIT
ON THE FED FUNDS RATE UNTIL HE!! FREEZES OVER IF NEED BE."
Unfortunately, it appears that the only market observer with the sophistication to understand Bernanke's point is a certain small, fuzzy white doggie.
they understood the point. it just wasn't what they believe they were told, and wanted to hear. from everything i've read (and roach on cnbs 2night!), the following seems a good summary - well, at least one that i can believe. i've omitted the ultra bearish stuff.
by the way, if you missed roach on cnbs, pretend sue hererra is expressing the ideas in the first paragraph and roach is expressing those of the last two, and you'll get an idea.
Comstock Partners, Inc.
The Only Economic Leg of Strength is Buckling
July 31, 2003
[...]
The folks who see only the rosy side of every story are blowing this one in the same way they have misinterpreted every other key turning point in the last few years. They blithely attribute the rise in rates to an ongoing recovery and therefore consider it a healthy omen of a strengthening expansion. They are wrong again!
There are two major reasons why long-term rates are rising, and a stronger economy is not one of them. First, the Fed, in its last FOMC statement, basically withdrew its intention to employ the non-traditional policy of buying long-term Governments to prevent deflation and decided to go along with the tradition of lowering the funds rate to zero if necessary. This obviously caused speculators to quickly unwind trades that had looked like a sure thing only to turn into a risky proposition.
Second, the administration raised its budget deficit estimates to record amounts and it suddenly became obvious that these deficits can do nothing but continue to increase as far as the eye can see. The amount of money to be financed by the Treasury Department has already increased in geometric proportions, and it's only going to get worse. Rather than getting additional stimulation, the economy is now actually losing the only aspect of stimulation that actually worked. We believe all of this is going to slam consumer spending sooner rather than later, and that the expectations for a second half recovery will soon go up in smoke.
AI
