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8/31/2011

Will Fed policy that refers to “doing whatever it takes” involve blowing air into stocks instead of focusing on Treasuries?

Last week the markets waited on pins and needless in expectations of Bernanke’s speech in Jackson Hole, as both bulls and bears waited for some type of signal/comment from the Fed governor to add to positions.  Reality was however that probably the only positive that came out of the speech was that it didn’t give bulls or bears any fire power.  The fact is that, despite media hype that described the speech as near genius, it was simply pathetic as it followed the “kicking the can” style strategy to solving problems.

The economic debacle the US and much of the developed world now faces renders monetary policy useless.  In fact, creative financial activities such as the QE program have produced greater imbalances in the economy.   The US economy does not need more sophisticated and creative financing to rectify its problems.  As we have voiced over and over and over again, the problem is structural and requires insightful, economic and business savvy minds from political leaders.  The problems lie in poor trade policies (including labor outsourcing) and inappropriate tax policies to name a few.

So you may think that Bernanke’s speech was genius given the almost unbelievable rallies in US Stocks that took place over the past couple of trading sessions.  If you remember just recently, stocks rallied some 8% over the thin market trading sessions around July 4^th only to give those gains back and more in more realistic, higher volume sessions.  Can the rally continue?  Hey, there are some that believe that the only remedy to solving our economic problems is by pushing up stock prices at any cost…stocks can go higher but sooner or later fundamentals will send them quickly in the other direction.