Fighting the wrong war
by digby
We seem to be making a fetish of it.
Here’s a very interesting piece by Barry Ritholz in today’s Washington Post called “Wall Street analysts and economists have this recession recovery wrong.” What makes it unusual us that it makes the case why investors should be concerned when the whole system breaks down the way this one has — the central bank is running out of gas and the political players are dysfunctional or are solving problems that don’t exist while ignoring those that do.
In the not too distant past, the market might have been inclined to rally following a horrific data point such as June’s NFP report. The assumption was that the Fed, or perhaps Congress, would respond to economic distress with its usual largess. But the immediate market reaction — selling off on the “surprisingly” bad number, and then having difficulty all last week — suggests that traders are no longer expecting a cavalry charge to save the day.
Indeed, the Federal Reserve is in no position to do much more without great distress. Markets briefly rallied Wednesday when Fed chief Ben Bernanke suggested that a QE3 was possible. But soon after he finished his congressional testimony, Federal Reserve Bank of Dallas President (and FOMC voting member) Richard Fisher said the Fed had “exhausted our ammunition.” And Thursday, Bernanke scared markets further, saying the central bank wasn’t yet ready to take additional steps to boost the economy.
Markets gave up most of their rally on the recognition that the cavalry might not come this time.
Even with the Fed out of the picture, investors should not expect any relief from Congress: The legislative body in charge of taxing and spending seems incapable of accomplishing much these days. We are more likely to see counterproductive austerity measures than anything else.
Investors, it looks like you are on your own this time.
On the other hand, these are the same guys who finance lunatics and lackeys to run these institutions and they are so short sighted they didn’t care if their greed killed off the golden goose. It was only a matter of time before it caught up with them.
.