Bernanke Dances To The Street’s Tune
October 31st, 2007 by 
reality
Greg Ip of the WSJ is generally considered a conduit for the Fed, saying what they can not or will not say directly. He wrote on Monday that the Fed might or might not cut rates: “Both courses of action have risks. Perhaps the biggest is that the market’s certainty that rates will be cut creates a burden on the Fed to deliver. Ordinarily, meeting market expectations isn’t a goal in itself for the Fed. But the current environment is more fragile than usual, and thus the consequences of disappointing the market are potentially more damaging.”
William McChesney Martin, Fed chairman in the 1950s and 1960s, said: “It is the Fed’s job to take away the punchbowl when the party gets really going.” Paul Volcker, the last Fed chairman deserving of any respect, wouldn’t have thought that pandering to the markets made any sense. “The market” doesn’t have any certainty about anything. It is just Wall Street that has the certainty, and this article shows that you, Mr Bernanke, are unduly influenced by Wall Street. The market is fragile? Flirting with all time highs and fragile? Don’t take us peasants for idiots as well, just because we don’t have our own taxpayer-paid tennis courts. Mr Bernanke, you showed your true colors when you announced a discount rate cut just before the market opened on an option expiration day. That was nothing to do with monetary policy, it was an attempt to manipulate the stock market. Alan Greenspan had previously done it for the same reason, it worked for him and it worked for you. But that doesn’t make it a responsible policy act, it makes it favoritism for a particular group of traders and it further erodes your and the Fed’s credibility and reputation for integrity.
Mr Bernanke, you are encouraging yet another bubble in the stock market, in effect pouring raw grain alcohol into the punchbowl. On your head be it. It is better for the market to be disappointed than dead drunk. And you, sir, are no better than your irresponsible predecessor. Perhaps worse, because you are showing weakness as well.
October 31st, 2007 at 5:44 pm
Cramer took credit for the rate cut today and said
“You should stop overthinking the market and just buy stocks. Valuations don’t make any sense but the Fed cut rates and you’ll make money!”
We are so doomed but I am making money. The question is whether I will be able to keep it…
October 31st, 2007 at 5:45 pm
I really would like to personally meet the “investor” that paid $707 of their hard earned money today at 4:00 PM to purchase 1 share of GOOG. (S)he could have purchased the same share less than 10 trading days ago for $620. Does (s)he really think it’s better to buy now because it’s such a fantastic deal? What price does (s)he think (s)he will sell it for in the future? $800, $1000? Is GOOG a buy and hold stock or rather more similar to a buy and flip condo in FL in 2006?
I met a realtor yesterday that is currently paying mtgs on 7 flip houses. All are vacant. All are for sale here in the Washington DC area. All with more than $800K mtgs.
I was wrong 3 weeks ago about GOOG. Perhaps I will be wrong 3 weeks from now. If it hits $1000 before the end of the year, I’m all in short.
Trying to be patient shorter.
October 31st, 2007 at 7:28 pm
Me too.
But I don’t think there’s anything to be ashamed about being “wrong”. During the South Seas Bubble, Sir Isaac Newton, probably the most intelligent man who has ever lived, correctly saw that it was a bubble and got out. Then he succumbed to the mania, got back in and promptly lost £20,000, the equivalent of several million dollars today.
October 31st, 2007 at 8:44 pm
There is a simple explanation for why housing, equities, oil, gold, etc. are all at lofty levels.
One sector at a historic high is a bubble. Every sector at a historic high is inflation boiling over and perhaps people are turning dollars into stuff as quickly as possible (like they did during the Weimar Republic era).
Also, economists don’t call recessions until long after they have started. Perhaps the same is true of inflation. It slowly creeps up on people until one morning they wake up and pay ten bucks for a double latte with extra foam.
Speaking of Newton, I got out of the market a couple years ago in anticipation of a bust. I got tired of watching everyone else get rich and re-entered the fray after the August drop which pretty much guarantees that a crash of monumental proportions is coming soon…
October 31st, 2007 at 9:01 pm
Well one certainly has to wonder if we are seeing the “Weimar Run.” But I don’t think so, the housing bubble has burst and I think the others will too.
November 1st, 2007 at 9:33 am
A collapse is coming, but it will happen in stages. It’s not worth shorting tech or the broader market for the time being since there’s still tons of 401k money coming in every month that needs a home. I’m short the mortgage companies, homebuilders, and smaller financials, because they have no institutional support and there’s less debate that they’re toast. Once they all go belly up, then I’ll take a stab at shorting Apple or Google. Take the path of least resistance, for the time being.
November 1st, 2007 at 10:04 am
The market may not make it so straightforward. IMO, when Google breaks it will be gapping down $20 at a time.
November 2nd, 2007 at 11:09 am
losing money shorting…. I can totatlly see the writing on the wall.. It’s been there for months.. Why doesn’t the street ever listen to the writing? The Dow should be sitting at 11,500 right now, with Google back around $375. The old adage, “The market can remain irrational far longer than you or I can remain solvant is too true”
I bought Google Nov Put spreads at 630×620 when google was at $670.. its like the energizer bunny. Am I having de-ja vu? It seems like this is the same thing that happenned to me in 1999-2000.. I blew my wad on short options only to watch the market sell-off for the next 2 years. I never seem to give myself enough time to be right.
How far out are you guys trading?
November 2nd, 2007 at 2:55 pm
Oh, about one second ;).
Two months ago I was 100% US cash. Now I am 50% stocks and 50% overseas cash. If the dollar devaluation continues I will sell my stocks after the December dividend payouts and move to 100% overseas cash.
I earned back the hefty CD early withdrawal penalties in just two freaking weeks!
Anyway, I usually make poor investing decisions but this time I seem to be doing the right thing. I just wish I had done it a year ago…
It has never been easier to move money overseas (ETFs, Funds, Perth Mint, etc.) Anyone can do it and if John Q. Public does then lookout below…
P.S. We are just playing under the feet of raging elephants (U.S., China, EU). I hope I don’t get squished.
November 5th, 2007 at 1:53 pm
red brian,
what etfs can you recommend for overseas cash - equivalent of us treasuries in risk avoidance?
i am john q public and i am out of us equities totally for now and i want to get out of us money markets (that are buying some amount of bad CDO paper) and i am not a big fan of US treasuries with the way the dollar is being devalued.
IMHO, it all starts with federal spending (and state and local govt to some extent). they waste so much money and spend more than they actually get/have and don’t seem to care. The US dollar is worthless to them so why should it have any value to anyone else???