Replies to post #48170 on S&P 500 & Nasdaq Analysis and Trends

[AnderL]

fixed investment rates are climbing, but are they out pacing inflation? I think they are inflation or the mechanization for it. The Fed lowers rates and pumps out liquidity to create inflation and then increases rates to slow it down or reduce inflation.

I think that when the Fed paused they were letting liquidity, wages, price inflation catch up. Amaranth blew up and took down oil and natural gas. You can't justify inflation if your major inflationary leaders are dropping in price. Paused Fed rates allowed for money to grow. With some added liquidity investors and traders were growing their portfolios and spending. Businesses were getting silly with profits and money in the economy was expanding again. By leaving rates flat for so long, inflation is starting to out pace the Fed rate and I expect that the Fed is going ot start playing catch up incrementally.

The Fed is trying to build muscle in the US economy. They make it stronger and worked it hard for a while but they can't over do it or they will strain the muscle and then the economy is down for the count until it heals and then comes back hobbling along. I think the pause was a more relaxed routine and the Fed is ready to start on some heavy lifting again.

People give Greenspan so much respect but what they fail to realize is that Greenspan failed to do what Bernanke is doing and that is growing the economy at a healthy pace amidst the housing fallout. Greenspan always took the easy way out and just kept inflating assets to get what he needed out of the economy. Stocks, Housing, Bonds, it was his answer to everything. One bubble implodes create another one to offset it. It was cheating if you ask me.

Between the Amaranth debacle, and the housing implosion, Bernanke's monetary policy has been spot on. We did not go into a recession despite the inverted yield curve. Bernanke has been doing a quality job on par with Volcker but few realize it. In time, maybe 20 more years of this and people will figure it out, but even Volcker had is old Fed ghosts to deal with before he got credit for his work as Chairman.