The main event this week is the speech from Ben Bernanke. In the US on Wednesday and Thursday, Ben Bernanke delivers his semi-annual testimony to Congress, which we think is some sort of report card on the US economy and a chance for congressman to ask inane questions about the Fed’s handling of the economic situation.
But Markets will probably be subdued until the high priest of monetary matters gives us his thoughts on all things money related on Wednesday and Thursday.
Last week, Dan wrote how financial markets resemble a drug addict. That’s exactly what they are. And now, we’re waiting for the man to speak. It’s an apt phrase. ‘Waiting for the Man’ is a classic song written by the Velvet Underground. Lou Reed was the lead singer, and he was addicted to heroin. The song is about his trek up to Harlem in New York City to wait for his man to deliver the goodies.
‘Hey, white boy, what you doin’ uptown?
Hey, white boy, you chasin’ our women around?
Oh pardon me sir, it’s the furthest from my mind
I’m just lookin’ for a dear, dear friend of mine
I’m waiting for my man’
And so, once again, financial markets wait on the man, Ben Bernanke, to see whether he’ll give a ‘sweet taste’ later this week.
He provided a nice little shot last week and now markets will expect confirmation of that rhetoric. But here is the problem. Consistent rhetoric has eluded the Fed over the past few months. There is disagreement amongst the voting members of the Federal Reserve Board. Some want to end QE soon while others want to keep it going.
Bernanke, in trying to present these views to the market, has finally revealed the Fed as a conflicted, clueless organisation. Bernanke doesn’t have the power of ‘the man’. Because if he doesn’t give the market what they want, the ‘market’ will come and tear his house down.
So he’s in an apparent position of dominance, but really he’s a pawn. He’ll either blow markets up or send them melting up.
The bottom line is that once conventional interest rates hit 0%, your only option to ease further is to engage in QE. But Bernanke is now trying to tell the market that ending QE is not really tightening, and that interest rates will stay low for an extended period.
The market knows better. QE is easing. That it’s not working is beside the point. Take it away and the market will feel pain.
Bernanke and the Fed have gotten us all into an almighty mess. They’ve screwed savers, rewarded speculators, and made a mockery of the investment process. Earnings and fundamentals are now secondary to the words of a non-elected academic who will soon comfortably toddle back to his books and theories.
And we’ll be left to clean up the mess…
for Markets and Money Australia
From the Archives…
The Agonists and the Ecstasy of the Financial Market
12-07-13 – Dan Denning
A Two-Faced Shock for the Australian Economy
11-07-13 – Dan Denning
Asiana Boeing 777: Lifesaving Defence-Tech ‘Miracle Materials’ in Action
10-07-13 – Byron King
Interest Rates: Something Wicked This Way Comes
9-07-13 – Bill Bonner
The End of a Share Market Correction… or the Beginning?
8-07-13 – Dan Denning