Market Update _ Two Years
Recently I was asked (told) not to write anything derogatory about politicians in these Market Update pieces anymore…at a minimum I need to not call out anyone by name for doing something stupid (like Barney _____ or Maxine ______) . Given the current level of fiscal incompetence that is being displayed by our elected officials I’ve found this to be a difficult constraint to live with. But since I like my job more than I like pointing out the incompetence of our elected officials I think I’ll try hard to live up to this challenge (order).
Recent Fed activity
Bernanke spoke to the Joint Economic Committee of Congress this week. This meeting is now one where a Fed Chairman who has no hope of fixing our problems, outlines what he is doing to a group of people who have no hope of understanding our problems. As far as I can tell the only constructive thing that comes out of this meeting is that the rest of us get to hear what is on the mind of the Fed Chairman.
For the first nine months of the year the Fed told us “all is well, growth is on the way in the second half, this slowness is transitory”. We are now deep into the second half of the year and the Fed is realizing that the cavalry ain’t on the way. Many of us didn’t believe that our troubles were transitory and now, two years into the “recovery” the Fed no longer believes it either.
Two years into the “recovery” unemployment is still running at 9.00%
Two years into the “recovery” housing is still in the dumps.
Two years into “recovery” Initial Jobless Claims are still above 400,000 per week.
Two years in the recover the Fed is still searching for the Holy Grail of monetary policy that will jump-start the economy.
There is nothing ground-breaking in Bernanke’s speech this week…we’ve heard all of it before. The general theme of the speech is that “we thought things would be better by now, clearly they are not.” Growth is low, inflation is low, job growth is slow and likely to remain that way for the foreseeable future, and the government sector (state and local) continues to shrink which exerts a drag on the economy as they reduce the work force and curtail activities and spending. There is no bright light at the end of the tunnel.
Tellin’ congress what to do
From there Bernanke moves on to beat the dead horse of fiscal responsibility. He lists four points for policymakers to consider as they create tax and spending policies…he told Congress to:
1 –Achieve long-run fiscal sustainability (I hope he could say this with a straight face)
2 - Avoid fiscal actions that could impede economic recovery (i.e. don’t do anything stupid)
3 – Promote long-term growth and economic opportunity
4 – Improve process for making long term budget decisions, create greater predictability and clarity, while avoiding disruptions in the financial markets and the economy (sounds like a fairy tale)
He summed up with:
“In sum, the nation faces difficult and fundamental fiscal choices, which cannot be safely or responsibly postponed.”
That is a nice way of saying “we are about to have the stagnation of Japan coupled with the violence of Greece if you don’t get a handle on this situation.”
His summary was good but I think it will be largely ignored by the electorate.
The FOMC members are making their rounds on the speaking circuit and we’ll be hearing more from them as the month progresses. As we hear from them I’ll be sure to decipher the Fed speak and send out a summary.
If you have any questions or if there is anything I can be doing for you just let me know.
Steve Scaramastro, SVP
800-311-0707
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