Monday, March 16, 2009

FOMC Should Be a Non-Event

Top Line: The market decided to do an arch today, up in the morning and down in the afternoon. This is the look of a turnaround in prices that may last a couple of days. This may be related to the timing of the FOMC meeting going on Tuesday and Wednesday. We'll review again in the next few days.

As for the FOMC meeting, how can this be anything but trivial to the market? What are they going to say, "Oh, yeah, we can't lower rates anymore or we would." Bernanke was on "60 Minutes" on Sunday evening and suggested that the economy would be coming out of the recession this year and that 2010 would be a recovery year. Bernanke did put a caveat into his speech that the government must make sure that the financial sector finds its footing. He does not want the government to lose its resolve in this effort. Here is a similar article from the WSJ.

To continue with Bernanke, he said that they are "printing money" so that it doesn't cost the taxpayers so much...What? He said once the economy turns around, this extra money will need to be extracted so that the economy doesn't produce a lot of inflation. This fits pretty well with our short term rally in the stock market followed by a dreadful downturn. When will the Chairman figure that it's a good time to pull out these excess funds? We think that the market will go up (a lot) this year and that will be enough to encourage them to start withdrawing. This will help the market go back down and then they will try yet again to restart the economy with these extra funds again...and so it goes.

The market will try to see how far the correction can go. This downturn could give us good clues for the next big move. We do think that that it's possible that the downturn is going to be shallow and brings the buyers back sooner than later. It's possible that some of the major indexes find a way to drop to new lows which would be a nice non-confirmation with a strong rally to follow. If all indexes manage to make new lows, we'll have to consider a slightly lower low but we don't think this should happen...

However, the recent news out of Washington is getting scary. The politicians are going after blood at AIG and that is a good way to bring fear back into the market for one last drop. We seem to have a voice of reason in Bernanke (kind of surprising really but when all around him are seemingly not smelling the coffee, he does seem to sound reasonable) against the wierd leadership from the government. We are treading on dangerous ground here. This is not a time to put fear into the people. We need confidence.


Jason said...

It seems like a bit of irresponsible journalism that virtually every major media outlet is labeling the bonuses that AIG is paying out as "reprehensible" or "outrageous". I didn't realize that it was so matter-of-fact-ly awful that AIG is HONORING CONTRACTS! It also seems as if Obama actually may have a legal leg to stand on as far as blocking these bonuses by arguing that they are "unconscionable". I don't know if there is a legal precedent that directly relates to this loophole, but I wonder if 50 years from now we'll be referring to "Prez v AIG".

If the creators of the bailout package trusted AIG enough to include them, maybe they should trust that they know what to do with their money. I know my company isn't giving out bonuses this year and it isn't exactly working wonders on morale. You can't give a kid a candy bar and then tell him he shouldn't eat it.

Anonymous said...

It appears that Jason is a chip of the old financial block! Morale at AIG has been on a downward spiral and inflamed headlines and noisemakers are doing nothing to help bolster employee confidence. Another day, another beating.

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