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Can Great Economic Reports Offset Bernanke’S Gloom?

 December 13, 2012 02:17 PM


Fed Chairman Bernanke's decision when he took office in 2006, for the Fed to be much more ‘transparent' in letting markets and the public know more about its inner workings, its concerns, its internal debates, its potential decisions continues to do more harm than good.

Sometimes I yearn for the days of former Fed chairmen Paul Volcker and Alan Greenspan, who revealed nothing of what the Fed was thinking. Greenspan was particularly adept at befuddling even Congressional committees with his famous "fed-speak" language that left committee members and analysts asking afterwards, "Wha'd he say?"

That approach of providing no transparency helped get the economy through a lot of problems during their combined decades in office. We only found out long afterward how worried the Fed had been at various times, knowledge that no doubt would have resulted in several panics had the Fed been transparent with its concerns.

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How well has it worked out having the Fed providing more transparency since 2006?

In February, 2008 in the early stage of the 2008-2009 recession, we saw Fed Chairman Bernanke and then Treasury Secretary Paulson in televised Congressional hearings on the economy and financial markets. You would think all participants would want to boost the chances of their new rescue efforts working, by providing the public with as much positive bias as possible.

But no, in the interest of full transparency, we had Bernanke warning about how the Fed expected still more negative pressure ahead from the housing collapse, worsening labor markets, a credit crunch that may have still more shoes to drop, and revealing that the Fed was also beginning to worry about the potential for rising inflation.

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That was really brilliant. Spend big bucks on stimulus plans aimed at boosting public confidence that more serious problems could be averted, and then completely undermine the effort with transparency that revealed still more worries in the Fed's thinking.

Since then the transparency has increased. The Fed's statements after its FOMC meetings have become more revealing of the Fed's concerns and thought processes, the actual minutes of the meetings are now released within a few weeks, and this year Chairman Bernanke has begun holding a press conference following the meetings to provide any lingering information or questions not provided in the FOMC statement.

The result has been that over the last three years markets have been forced to focus not so much on the normal driving forces of markets, the economy and earnings, but on what the Fed is worried about, what its members are thinking, what tools it is discussing that it could bring into play if needed, and what might trigger potential market-moving action.

The Fed's action would have a better chance of producing the sustained positive market reaction the Fed is apparently after, if the Fed had simply taken the action and shut-up. Chairman Bernanke's penchant for ‘transparency' has caused more uncertainties than clarity over the years since adopted.

And it did so again yesterday.

The Fed ended its FOMC meeting and in its statement afterwards said it had decided to provide yet another round of QE type stimulus.

The stock market immediately reacted positively to the decision, the Dow shooting up to a gain of 81 points, other major indexes away from the blue chips up more than 1%.

But then Chairman Bernanke began his press conference and quickly destroyed the confidence boost the decision had apparently been aimed at producing, by concentrating on the negatives bothering the Fed, pointing out once again the risk of the fiscal cliff, and repeating his warning yet again that the Federal Reserve does not have the ability to shield the economy from the cliff, that it's up to Congress.

The stock market began plunging as he spoke and gave up all its previous gains from the Fed decision to provide more stimulus, the Dow closing down 3 points.

It's a shame that Bernanke is so attached to his brutal, off-setting transparency efforts that seem to so often sand-bag the very goals of his Fed decisions aimed at bolstering consumer and market confidence that recovery will take place.

It's a particular shame after seeing this morning's very encouraging economic reports which normally would provide the market with reason to build on the gains it initially took from the FOMC stimulus decision.

New weekly unemployment claims fell sharply, by 29,000 to 343,000, and the four-week moving average feel by 27,000 to 383,500, both back well under the critical 400,000 level. The Producer Price Index plunged –0.8% in November, after a decline of 0.2% in October, indicating inflation is well under control, giving the Fed plenty of room to continue its easy money policies without creating inflation. And Retail Sales were up 0.3% in November after being down 0.3% in October.

The question becomes whether the promising looking favorable season rally will also be sand-bagged by the  Chairman's transparency of his worries coming on top of continuing uncertainties being created by Washington in the fiscal cliff talks. 

At least, we know what our technical indicators are saying about the situation.

Yesterday in the U.S. Market.

The Dow traded in another fairly narrow trading range of just 102 points between its intraday high and intraday low on fairly light volume of 0.7 billion shares traded on the NYSE.

But it was not a pretty day. The market was up fractionally all morning, and then rallied more when the Fed's FOMC meeting ended and it issued its statement and decision to provide more stimulus. That had the Dow up 81 points. But then it immediately began to give it all back when Fed Chairman Bernanke began his pessimistic press conference saying the Fed overestimated the pace of the recovery, and repeated what he's been saying all along, that the Fed does not have the ability to shield the economy from the fiscal cliff, that it's up to Congress and White House to solve that problem.

The Dow went from being up 81 points to closing down 3 points.

The Dow closed down 3 points, not measurable as a percentage. The S&P 500 closed up, but less than 0.1%. The NYSE Composite closed up 0.2%. The Nasdaq closed down 0.3%. The Nasdaq 100 closed down 0.3%. The Russell 2000 closed down 0.7%. The DJ Transportation Avg. closed down 0.3%. The DJ Utilities Avg closed down 0.1%.

Gold closed up $2 an ounce at $1,712.

Oil closed up $.96 a barrel at $86.75

The U.S. dollar etf UUP closed down 0.2%.

The U.S. Treasury bond etf TLT plunged 1.2%.

Yesterday in European Markets.

European markets closed somewhat positive yesterday. The London FTSE closed up 0.4%. The German DAX closed up 0.3%. France's CAC closed unchanged. Greece closed up 0.1%. Ireland closed down 0.4%. Italy closed up 1.2%. Spain closed up 0.8%. Russia closed up 0.6%.

Asian Markets were positive Tuesday night and mixed last night.

The Asia Dow closed up 0.7% Tuesday night, and up 0.2% last night.

Among individual markets last night:

Australia closed up 0.1%. China closed down 1.2%. Hong Kong closed down 0.3%. India closed down 0.7%. Indonesia closed down 0.4%. Japan closed up 1.7%. Malaysia closed up 0.1%. New Zealand closed down 0.5%. South Korea closed up 1.4%. Singapore closed up 0.5%. Taiwan closed up 0.9%. Thailand closed down 0.1%.

Markets This Morning:

European markets are down some this morning. The London FTSE is down 0.3%. The German DAX is 0.3%. France's CAC is down 0.3%. Spain is down 0.1%. Greece is down 1.0%. Italy is down 0.3%.

Oil is down $.59 a barrel at $86.18.

Gold is down $20 an ounce at $1,694.

This Morning in the U.S. Market:

This week will be a light week for potential market-moving economic reports, but they will include some of significant importance, including the Fed's FOMC meeting and its decisions, the U.S. Trade Deficit, Retail Sales, Consumer Price Index, etc. To see the full list click here, and look at the left side of the page it takes you to.

There were no reports Monday.

Tuesday's reports were that the NFIB Small Business Optimism Index fell sharply in November, from 93.1 to 87.5. The survey showed 49% of small-business owners expect future business conditions to be worse than current conditions. And the U.S. Trade Deficit was up 4.9% in October to $42.2 billion, about in line with the consensus forecast.

There were no economic reports yesterday. The main focus was the Fed's FOMC meeting decisions. There was positive news from it, in that Fed will provide more quantitative easing to stimulate the economy, but then Fed Chairman Bernanke cooled off the enthusiasm when at his press conference he said the Fed overestimated the pace of the recovery, and was less than optimistic regarding the fiscal cliff, saying it has already had an effect on the economy and is a major source of uncertainty for the economy going forward.

This morning's reports were great numbers. New weekly unemployment claims fell sharply, by 29,000 to 343,000, and the four-week moving average feel by 27,000 to 383,500, back well under the critical 400,000 level. The Producer Price Index plunged –0.8% in November, after a decline of 0.2% in October, indicating inflation is well under control. And Retail Sales were up 0.3% in November after being down 0.3% in October.

The reports hardly budged the pre-open indicators.

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