Testifying on Capitol Hill, The ‘Nank Said…What?

With The ‘Nank in the hot seat on Capitol Hill Wednesday, our good friend Doug – “the savviest financial advisor we know”  – called to ask whether we were seeing any signs of a paradigm shift on our charts. That would be logical, he said, since the Fed Chairman appeared to be preparing his Congressional inquisitors and the news media for nothing less than The End of Quantitative Easing. Our own reading of Mr. Bernanke’s intentions, based on news reports, was that he was preparing us for more of the same, although he did pay lip service to the idea that, at some point, the Fed would have to tighten. Dow Jones wire service paraphrased him as follows: “[Mr.] Bernanke…sought to reassure lawmakers the Fed wouldn’t allow inflation to take root in the U.S. by waiting too long to tighten monetary policy, but gave no indication he is ready to do so right now.”  Although The ‘Nank’s bloviations were much less opaque than the cryptic double-talk we used to hear from Mr. Greenspan, they didn’t provide much reason for us to think that monetary austerity is about to become an actual policy option any time soon.

Whatever the case, there was no paradigm shift evident on our charts. T-Bond futures, for one, did not surge to create a bullish impulse leg on the hourly chart (although they could conceivably do so today, so we’ve reserved judgment).  We credit the Dow Industrial Average for having read the Nank’s performance just about right, ending the day up an insignificant seven points. That is not to say traders failed to give the Fed chief his due. In fact, they added a little buying frillip at the close that hauled the blue chip average out of the red, where it had languished for the previous four hours.  It also extended Wall Street’s latest winning streak to eight days, providing the news anchors with a positive note for their one-sentence wrap-up of yet another sunny day on Wall Street. 

Are You Ready? 

Concerning the prospect of an end to quantitative easing, if you think that would be a good thing, don’t get your hopes too high.  In the first place, there is no reason to believe ‘The ‘Nank has stopped using the housing market as his yardstick for measuring the supposed economic recovery.  Under the circumstances, he is not about to tighten, since it would turn a real estate market made fragile by the financial equivalent of pancreatic cancer into a corpse. In the second place, although we’ll concede that ending QE will be necessary to put the economy back on track, doing so will initially throw the nation into a deep depression. Are you ready for it? We didn’t think so. The fact that stocks barely budged yesterday suggests that no one else is either. 

Rick Ackerman

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