Who Do You Trust

Other than pointing out the seasonality, trying to analyze the market right now  is an exercise in futility. Instead, I thought we could play a game. Who do you trust?

 I had to give Bill Clinton two spots. Both were classic. Ben Bernanke almost received a second spot for his 100% certainty that he can control inflation.


Anonymous said...

or 3 with the no recession remark in early 08.

PJ said...

Bernanke's second remark was that he could CONTROL inflation ... he didn't say no inflation, in fact his target is 2% inflation but some economists want him to shift to 5% NGDP growth which in a stagnant economy would require 5% inflation.

Bernanke thinks the Fed can hit whatever inflation target it sets.

I think that's crazy because there are long lags between policy and inflation, so they risk getting cyclical inflation (it's too low, so they follow an inflationary policy for a year+, they get 10% inflation, so they follow a disinflationary policy for a year+, then they get 0% inflation ...). Also with high debt levels inflation and higher interest rates risk a sovereign credit issue. Finally political pressures make it hard to fight inflation, as we learned in the 1970s. Certainly the banks would not like it.

So the control quote would be a good one, but you have to be fair to him with an exact quote.

Tsachy Mishal said...

Changed it

PJ said...

Also the "we're not printing money" is technically true, they are creating electronic credits for the banks in the Federal Reserve's accounts. They must have agreements prohibiting the banks from making withdrawals from these accounts. (In order to meet withdrawals they would either have to print money or sell some of their assets, which would reverse QE at a loss.)

This is fine so far because the banks haven't needed the cash. But what about when they do? What is the Fed's plan?

It seems to me they haven't thought that far ahead. Their plan is for the economy to grow, allowing them to get back full value for their MBS and use the proceeds to pay down the bank excess reserves. Unfortunately that ain't gonna happen.

But he never said "we won't print money."

Tsachy Mishal said...

Its also technically true that Bill Clinton did not have relations with that woman, depending on how one defines relations.

Anonymous said...

fed is roiling housing again.
qe = higher long yields = higher mortgages = no home purchases

Anonymous said...

I'm not sure why your dumping on Bernanke?
I'm guessing it's because your not all in long?

Don't blame him. He said point blank that he wants to raise the stock market to create a wealth effect. The second they announced QE 2 you should have been ALL IN LONG.

I realize thats not your trading style, maybe you should change it.
I have. I use to try to play both sides. Long and short the market depending on the overbought/sold reading. Now I'm long. Take profits; wait for pullbacks (they will come, you just have to wait) and go long again.