the market was finally seeing a bounce. It wasn't a big
bounce but a cautious bounce. After so many bad days the
positive bounce was most welcomed. The technicals have for a
few sessions now indicated a bounce should happen and indeed
looking at the SPX chart below for today June 7, the bounce
started right at the open. Investors carefully picked up
some stocks that they felt were undervalued and good for a
afternoon, Federal Reserve Chairman Ben Bernanke
basically "tanked", ending up pretty well where it started.
Perhaps investors were anticipating that Mr. Bernanke would
announce a third quantitative easing strategy. Why he would
do this when QE2 is not even finished is obviously beyond my
retail investor's aptitude.
But it would
seem to me that the scope of QE2 has not really accomplished
a great deal other than pushing risk assets higher and
possibly even creating a commodity bubble. However what
really caught my attention was the
"fighting words" between Bernanke and J P Morgan Chase
Chief Executive Jamie Dimon. Dimon suggested that a lot of
the regulatory changes to the financial sector by the
Federal Reserve were responsible for the sluggish US
economic performance. Bernanke shot back a denial indicating
that no study has yet been done to look at the changes to
credit regulations and how they have impacted banks, let
alone the economy. Just a question, but when I run a
business, usually I do the study to determine its impact
BEFORE implementing them. But alas I guess with my small
retail investor brain, such big events as financial reform
are beyond my comprehension.
just don't get it. Bernanke blamed much of the "woes" on the
Japanese earthquake - tsunami and indicated he in upcoming
months this will dissipate and the US economy and
unemployment will improve. But wasn't this earthquake -
tsunami written off by most economists as a short term
"blip" on the economic front or simply nothing to be too
concerned about? While to give him his dues, I don't recall
Bernanke indicating anything about the Japanese earthquake -
tsunami economic impact, however, shouldn't something have
been said about this earlier in the year? I mean, after all
I just have a small retail investors aptitude, so I suppose
these "big picture" items are again beyond my comprehension,
but after investing for 35 years I know that events like
major earthquakes in Japan can have long lasting results.
The Kobe earthquake of 1995 saw a rise in US unemployment
and dip in GDP and it took more than a year for unemployment
But what I
thought was even worse was Mr. Bernanke's
economics lesson which comprised more than half of his
speech. I won't bore you with the details as you can
read them on marketwatch.com yourself, but it is painfully
obvious that Mr. Bernanke is beginning to feel the lash of
critics around the world, not just in the USA. But to be
fair let's look at what were the three main goals of
unemployment - this has failed to work.
mortgage rates to almost zero in a effort to stop the
decline in housing and put a floor under the US Economy.
This has failed to happen.
3) Create some
inflation in order to reduce any chance of deflation.
Personally I realize that food prices are up, gasoline
prices, insurance and a lot more, but truly I still believe
down the road you will see the fear of deflation return yet
again. What seems to be missed by economists around the
world is that the baby boom generation which is in just
about every world country, is retiring and this means a
change in spending habits, saving habits, traveling habits,
downsizing of homes, automobiles, and much, much more.
There is no way to stem the tied of baby boomers retiring
around the world. This will change living standards, GDP,
tax levels, pension payouts, world trade imbalances between
many nations and a lot more. This isn't rocket economics
101, but just plain knowledge.
So did QE2 do anything? Well it allowed the
major US financial industry to re-capitalize their balance
sheets thanks to Fed Funds, but short of that the banks
refused to lend at next to nothing interest rates, Fannie
Mae and Freddie Mac are basically bankrupt, Canadian
homeowners can still get a mortgage within Canada for less
than their American cousins, which by the way is really
weird, and USA unemployment is still stuck at around 10% and
truthfully is probably more than 15%. On top of this no one
seems to have been "brought to task" for the credit crisis
mess, banks world wide still have hundreds of billions of
bad debt, non-performing mortgages, trillions in derivative
products that no one, even the Federal Reserve seems to
understand and mountains of debt, at all levels of
government both in the United States and around the world.
Is it any wonder that there are so many calls for a
rethinking to the Federal Reserve.
On top of all of is the seemingly strange
part of Congress, the Whitehouse and the Senate to grapple
effectively and realistically with any of the issues. Even
the arguing about the debt ceiling is, when you contemplate
it, almost insanity itself.
So thank you Mr. Bernanke for the economics
lesson. But honestly no one needs an economics lesson
because everyone knows the problems with the US economy -
it's all about unemployment and housing and yes it is that
simple and maybe, its time to think outside the box.
The views expressed in the above article are
mine and mine alone. That's why it is called an "opinion