I’m sorry but the game (and I am sure that you will all agree) is becoming rather tiresome with boorish Ben Bernanke at the Federal Reserve. I have the distinct impression that either he is doing the hokey-pokey (one foot in, one foot out, except it’s the markets that are getting shaken all about) or he is doing his Peter-and-the-Wolf pantomime number for the kids. One minute we hear that Quantitative Easing is going completely, then it’s going a bit and withdrawing in side-steps and little paces and then it’s going to carry on. Where do we stand? He’s making the markets dizzy with all this waltzing around back and forth. Or is that the idea? Get the markets so dizzy that Quantitative Easing will be withdrawn as the masses are trying to pick themselves up from dazed and dazzled bewilderment. If that’s the objective, Ben Bernanke and the Federal Reserve are right on line. Bullseye Ben!
During last night’s talk that Ben Bernanke was giving at the national Bureau of Economic Research in Cambridge, Massachusetts (July 10th) he stated that loose monetary policy was far from over! $85 billion is being pumped into the US economy and he said that the bond-buying days were still with us. He spoke of “highly accommodative monetary policy for the foreseeable future”. He went on to state that despite the fact that analysts seem to be pretty positive about the direction the US economy is heading in (although that’s very debatable), perhaps the true rate of unemployment was higher than present figures might be suggesting. He also added that there were signs of ‘internal weakness’ in the US economy and that a 6.5% unemployment rate will not “trigger tightening by itself”. Only two weeks ago he was speaking of pulling out of Quantitative Easing and tightening the belts on the economy.
So, what is Ben Bernanke playing at? The markets reacted today to that statement favorably. China’s Shanghai Composite hiked 3.23% (+64.87 points to 2, 072.99) today. The FTSE 100 increased +0.65% (+42.36 points to 6, 547.32). The DAX went up 1.25% (+100.93 points to 8, 167.41) and the Nikkei rose +0.39% (+55.98 points to 14, 472.58). The CAC40 was also up by +1.01% (+38.81 points to 3, 879.34) at 07:52 ET today. Imagine that! Just a few words from Ben Bernanke that the Quantitative Easing will still be there and the markets rally. The power that is in that man’s hands (or mouth)! The markets feed off of it like a prophecy from the Messiah. But, having said that, maybe in two weeks there will be a change of tune and we’ll be back to square one, with the markets getting no change out of the Federal reserve at all (not even small change, for that matter).
That statement during the speech will certainly have some effect on the Dollar but also on the EU’s trouble and strife at the moment. The Dollar rallied just a few weeks ago against other world currencies and in particular caused some trouble for the Euro, making matters worse for the EU’s growing debt woes.
The Dollar has come in for a bit of a hammering from the markets today. This is due primarily to Bernanke’s statement yesterday but also because of the minutes of the FOMC which clearly showed that there was a divergence of opinion at the Federal Reserve. Many stated in those minutes that they needed to see improvements in the unemployment rate that were far more substantial than at the present time before the taps are turned off on the loose money being dished out. There were also comments about bond buying continuing well into 2014, rather than tapering off in September and being withdrawn completely by January 2014. The Federal Reserve seems very much divided on the situation. But, will this mean that the compromise would be that tapering should begin in 2013 and end in 2014 over a longer period? If we are to judge the comments of Ben Bernanke last night no tapering will occur until the jobless rate hits below the 6.5%-mark.
The weekly report was issued today by the Bureau of Labor Statistics regarding the current situation for jobless claims. For the week ending July 6th, there were 360, 000 initial claims, which is an increase of 16, 000 on the week before (344, 000). That means a 4-week average of 351, 750 (up 6, 000). The advance (seasonally adjusted) insured unemployment rate stood at 2.3% for the week ending June 29th.
We will see what reaction that brings in the market.
The Euro rose today against the Dollar as a result of those comments. The Euro was up 0.65% against the Dollar today at 08:32 ET (+0.0084 to 1.3062).
The Dollar also fell against the Yen (-0.48% by 0.4800 to 99.2000).
The British Pound was up 0.65% (+0.0098 to 1.5113) at 8:33 ET today also.
The Dollar took a tumble against all major currencies, anyhow on Thursday as a direct consequence of those doubts now being raised.
The statement that Bernanke made will also have some effect on the woes of the EU. If tapering starts in the US, then tapering will also probably have to start in the EU at some point and it’s far from the right time to actually do so with the number of government securities that are held by European banks at the present time.
There will be some respite for the EU, therefore. If the US continues its bond-buying then interest rates will not rise and the EU won’t have to increase their interest rates either. There are 1, 700 billion government securities that are currently on the books of European banks, which can only mean trouble at some point if interest rates rise.
So, is Ben Bernanke doing the hokey-pokey on us? Uncannily, he probably is given the fact that the origin of the words ‘hokey-pokey’ stem from ‘hocus pocus’, the traditional and well-known incantation of a magician. That itself can be traced back to Jesus Christ’s words at the Last Supper: “hoc est enim corpus meum”, meaning ‘this is my body’. We all know what happened afterwards: the bread got handed out and Jesus ended up being crucified, nailed to the cross. Ben Bernanke has done just about the same thing. He handed out the bread, didn’t he? He threw that from his helicopter to the masses below. Only one thing that is left to do now and the prophecy will come true!