Bernanke’s Final Whipping Looms

StockJockey at 1440 Wall Street is skeptical that the markets will rally anytime soon, as the "patient" appears to be at death’s door.

Bernanke’s Final Whipping Looms

Courtesy of StockJockey at 1440 Wall Street

The knuckleheads in Washington are pulling up all the stops to stabilize the patient before "this sucker goes down" to paraphrase President Bush. Will they succeed?

The TALF could be compared to another round of quantitative easing; it is big money once it gets rolling. But at least one guy thinks that blundering regulators will fail, and that a plunging economy will ultimately cause Bernanke to panic later this year, firing up the printing press in ways his harshest critics never imagined. And finally leading to a sustainable bounce.

Bernanke’s crystal ball does not work, and the consensus thinking among economists that we GDP will slide 5%-6% (annualized) in the first quarter, with improvement in the second quarter, is likely to be wrong.

With a number of strategists musing that we will be facing a (negative) catalyst of sorts when the banks report first-quarter earnings in April, combined with revisions to downward revisions to GDP, we could see the final panic from Bernanke mid-year given the spending portion of the stimulus plan will not yet be working its magic.

In any case, Bernanke’s track record makes the following scenario plausible:

"The Federal reserve started on a process of quantitative easing at the end of August. The balance sheet of the central bank exploded through November. But now it not only has stopped expanding; it has fallen back a bit. It would seem that Helicopter Ben, the quantitative easing man, is dithering.

_______________________________________

But will Helicopter Ben and his FOMC continue to dither if the economic decline continues at a high rate, for whatever reason, well into the second quarter, even after the fiscal stimulus was supposed to have been doing its magic?

My guess is that, like market participants who have never really understood this cycle, the Fed and the FOMC, who have poorly understood this cycle at best, will panic along with market participants. Finally they will abandon all concerns about central banker propriety and a future threat of inflation and turn to the whirring printing press, buying up securities by the buckets full and issuing monetary base like there is no tomorrow.

The consequent quantum rise in the monetary base will then add to the fiscal stimulus. It may fill the pockets of those who hold portfolios with barren monetary base that begins to burn a hole in their pocket. That may add to the positive shock to investor psychology from economic and corporate surprises. In effect, Fed capitulation and a quantum rise in quantitative easing might turbo-charge a stock market recovery lifting off of panic lows." Frank Veneroso

Until then we will leave the bottom-picking to Doug Kass.

There is a ripping rally out there somewhere, but I have no idea what level it starts from. Hopefully is just around the corner, but June/July is barely visible from where I sit.

Buyin ‘em here, which requires placing some trust in Lame Duck Ben and Tiny Tim, is a leap of faith. Color me skeptical, and keep the Gatorade jug on ice, Doug.

We will eventually break it out. And with all due respect to Mr. Kass, I hope you are still standing when we do.
___________________________________________

Bernanke today…Part One

_________________________________________________