THERE WAS CERTAINLY NO SURPRISE FROM THE FED TODAY EXCEPT THAT THE FOMC STRESSED THAT THERE ARE SIGNIFICANT DOWNSIDE RISKS TO THE ECONOMY. It appears that this phrase caused the markets to sell everything after the release of the most important outlook for U.S. economic policy. The market’s response must have left Mr. Bernanke wondering just what the FED could actually do to lift the “animal spirits” of the investor and business community.
As was mentioned in yesterday’s NOTES, it seems as if the markets are undergoing a change of thought and beginning to anticipate the onset of a renewed global economic slowdown. The U.S. DOLLAR is gaining some upside momentum as global investors look to safety instead of risk. The U.S. is locked in a ZERO INTEREST RATE POLICY (ZIRP) and is widely viewed to be in the throes of a political battle causing dysfunction as it heads into the 2012 presidential election.
Four economic lightweights from the Republican leadership wrote a letter to the Bernanke Fed advising them against further efforts of easing and this just prior to the FED decision. Last week it was the MASTER OF THE HOUSING CRISIS, Barney Frank, who offered advice as to whom should be able to vote on FOMC decisions. The Bernanke FED is now a campaign issue for the 2012 election but the FED will get a reprieve as it will be WALL STREET that will be the target of the public’s antipathy as the election heats up.
The large WALL STREET banks will rue the day that Glass-Steagall was ever repealed. (It will be of little matter for those corporate chieftains who took the money and ran.) If the prices at today’s close (across the gamut of asset classes) was an indication of global sentiment, the world’s investors are suddenly growing very tired of the ill-conceived policies of European and U.S. decision makers. HOW MANY ROADS CAN A CAN BE KICKED DOWN?
The ECB and the Eurocrats have failed to present a cogent plan for dealing with the PIIGS. They have merely jumped from crisis to crisis in search of a BRIC HOUSE only to find that everything is merely made of straw. Trichet has practiced a banking plan that would have made DON QUIXOTE proud as he has tilted at the windmill of inflation. He has overseen two rate increases in the last six months as the European debt crisis has become more entrenched. The Germans have demanded more austerity from the beleaguered PIIGS even as their economies have head into negative growth. Berlusconi and Sarkozy believe that the biggest public works projects in Italy and France should be building even larger BALCONIES for them to stand on as they orate.
The Chinese send up false positives about providing funds to help buy European Sovereign debt but fail to deliver the money, thus disappointing the markets and creating very short-lived relief rallies. The Brazilians repeatedly warn of CURRENCY WARS as the ZIRP of the U.S. has caused money to flow to the high growth/high interest rate emerging market economies. It is not just the Brazilians who are complaining about the ill-effects of overvalued currencies. Today, Alan Bollard, governor of the RBNZ, was voicing his concern that the KIWI was overvalued.
Also, it was the SWISS who have raised the effectiveness of CURRENCY INTERVENTION TO A WHOLE NEW LEVEL. Throw in the political chaos in the MIDDLE EAST and war in many parts of the globe and the market reflects that investment capital is exhausted. Even in a ZERO INTEREST RATE ENVIRONMENT, money is becoming tired and wants to be like DOROTHY in the WIZARD OF OZ. IT JUST WANTS TO CLICK ITS HEELS AND GO HOME.
Tags: 2012 Presidential Election, Alan Bollard, Barney Frank, Berlusconi, Bernanke, Brazil, BRIC, currency wars, ECB, Fed, FOMC, Germans, Glass-Steagall, PIIGS, RBNZ, Sarkozy, swiss, U.S. Dollar, Wall Street, zero interest rate policy, ZIRP