Up and Down on Wall Street.
All technical moves today. Market ended up betting on growth-to-come.
STOP PLAYING 'BLAME THE FED', ALREADY
Ben's o.k. He's got an almost impossible job to do, in the current circumstances. "Fed speak" was "invented" for good reasons. The Chairman needs to be a rhetorical contrarian, for the most part, as a way to influence market expectations. "Fed speak" facilitates putting the emphasis on the syllable that needs it, at the time.
Ben started out with all the right moves, getting some structural fixes at least in motion before passing out the candy. Of course, the pressure from Wall Street magnums, like Kudlow, who pine secretly, we may imagine, for Bear Stearns and the mess that they created for themselves, is enormous. Even Greenspan was no match, in his time.
THE LION, THE WITCH, AND THE WARDROBE
The Fed cannot fix the housing mess alone - they can pass out candy and try to regulate broker-stuff that was never under their regulatory umbrella before, I guess. Meanwhile, lobbied-politicians are intent to bailout the lenders by getting the government (taxpayers) into "jumbo" junk mortgages! For their own part, taxpayers can get bang for their buck investing in some infrastructure projects, right now, though - airports, schools, bridges - which improve the long-term outlook while also helping a stressed sector of the economy not go over a cliff, altogether.
The financial messes still need attention. Bond insurers, most recently, need a non-taxpayer backstop - where's the private capital, eh (does free market theory say that someone will step in)? A capital injection, as part of a stimulus package, for Freddie and Fannie will allow them to buy up stuff on the secondary market, rather than re-financing stuff. Giving financial institutions (banks) a short-term pass on capital requirements will help avoid a credit crunch that is capacity / balance sheet related (the part that is credit quality related is all part of the inveterate credit-cycle and cannot be avoided). The Bush-Paulson plan is weak and is not substitute for giving judges the ability, on a short-term basis, to modify mortgage loan terms.
Without help from other central banks, most likely the Fed cannot fix the energy mess in oil, nor can they address Bush's looking the other way as people's energy costs, including natural gas prices, rose precipitously on his watch (graphs on this already on the blog).
Wednesday, January 23, 2008
Markets Go "Weeeeee!"
