Bernanke: Batter UP!
The market anticipates the next two Federal Reserves meetings with the new Federal Reserve Chairman, Ben Bernanke to end raising interest rates. The recent stock market rise to 5 year highs despite higher inflation may continue with momentum players driving the Dow Jones to new historic highs. This same scenario happened in the early 70’s with rising inflation boosting the Dow Jones Industrial averages to new highs breaking the 1000 point barrier. The S&P 500 index was in it’s infancy as a broad diversified hedging instrument. The new S & P 500 index marched to new highs, despite the Dow Jones Index’s trading range from 400 points to 1000 points over previous 10 years from 1966 to 1976. The short term high of the Dow Jones breaking out of this trading range marked the rising tide of inflation. Meanwhile, the S & P 500 reached its high in 1973 only to have a major correction when the Dow Jones Index began its correction. When both of these indexes began to correct, the long term investors suffered a 40% loss, which would take another 10 years to recover to new highs. History is repeating itself in today’s market with the Russell 2000 index making new all time highs while the Dow may reach a temporary new historic high of 12455.
The interesting note about the Federal Reserve
Chairman Bernanke is his lack of experience in a leadership role. The logical candidate for the Federal Reserve Chairmanship should have been
Vice Chairman Roger W. Ferguson. He has submitted
his resignation last month. Dr.
Roger Ferguson has been at the Vice Chairman position longer than Dr. Bernanke has been a member of the Federal Reserve.
I can only speculate why Dr. Ferguson was not chosen over Dr. Bernanke, but there are only 3 logical conclusions why Dr. Ferguson was not selected.
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The first reason is Dr. Ferguson’s political views. Whereas Dr. Bernanke resigned his position as a Federal Reserve member to serve on the President Bush’s economic advisor from June 2005 to January 2006. The Federal Reserve Chairmanship should not be tied to political payoffs. Is this another Presidential Mistake by appointing someone with obvious political ties?
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Second, maybe Dr. Ferguson was asked to serve as chairman of the Federal Reserve, but declined for various reasons; maybe the economy’s outlook is not as great as the market media matrix is saying.
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Third, Dr. Ferguson is Black, and if the economy fails, like the 70’s, he did not want provide convenient racial stereotype.
The market media matrix has a “cookie cutter” stereotype of “white businessmen” who have failed or involved in criminal activity. Remember, Fannie Mae and Freddie Mac scandals, how many pictures of the President of Fannie Mae or Freddie Mac has you seen on television? I know one of the two are black, but can’t find the other one’s picture. Can you find their pictures on the internet? Yet, the “cookie cutter” market media matrix shows numerous pictures of those “white guys” like Ken Lay, Frank Quattrone, Bernie Evers, etc… just search for “stock scandals” and you will see numerous pictures of white guys” being caught.
The market media matrix wants you to believe that only “white guys” are
Now there are many black CEO’s in the corporate world, but if the market media matrix publicizes this information, it would ruin the Democratic Party’s racial inequality stereotype.
So, what will Dr. Bernanke when he takes his place at home plate? Will he hit a single or a double? In my opinion he should hit at least a double, meaning a ½ point rate hike and then tell everyone in a transparent move that he will wait until the August meeting to see the effects. His best option would be to set a target for the Federal Reserve’s interest rates until the home buying season is off to a good start. The biggest problem I have always had with the Federal Reserve’s policy was that it was too slow and they have always over corrected when trying to tame inflation. Their slow and methodical approach does not work with human behavior, especially when dealing with irrational stock gamblers. Unfortunately, Greenspan has left Bernanke a tough act to follow, because the bases are loaded with 15 rate hikes already. Even if Bernanke tried to hit only a single, the bond gamblers may have committed errors by their complacency with an inverted bond yield. A simple base hit could clear the bases! Greenspan definitely left the game in time after loading the bases and brining in an un-tested designated hitter. This inning is ending, and the bond gamblers want to close this inning without “window dressing” on the stock market gamblers. If the bond gamblers have errors during this week, the stock market gambles will pay the price during the next inning.
God Bless
Doc
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Doctrader
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