Maybe it’s my imagination, but it seems like Mr. Bernanke has been very quiet as of late. You hear a lot of commentary about him, accompanied by a photo, but you don’t see any live action shots of him. Paulson and all the other clowns are in front of the cameras on a daily bases, but not the Fed chief. I am convinced he knows just how dire the situation is, and just how little credibility the government has, so he doesn’t want to waste his standing on mundane daily issues. Somewhere along the line Mr. Bernanke decided that “silence is golden”. Today was another example. Everybody was discussing whether the Fed would lower interest rates by 25 of 50 bases points and what did the Fed do? Nothing! It makes perfect sense if you stop and think about it. Over the last year the Fed has lowered rates down to 2%, injected well over a trillion dollars into the system, bailed out Bear Stearns, and yet has accomplished absolutely nothing. If you make a mistake that’s fine, everybody makes mistakes, but do not repeat your mistakes. People who repeat their mistakes don’t care about what they are doing, have some sort of disability, or just aren’t smart. It is usually the first case by the way.
Today the Fed didn’t do anything because they are afraid of inflation, or the economy is gaining strength, but because there is nothing they can really do. Lower rates all you want and inject liquidity until hell freezes over, but no one wants the money so it just won’t work. Nothing the Fed has done to date has filtered down to the people who need the help. All Bernanke has done is bail out friends of the administration and it just may be that he has a conscience. He left Lehman Brothers swing in the wind, but is bailing out AIG. And speaking of AIG, I had to laugh when it was announced that Hank Greenberg wants to take over the company. He’s the very person responsible for all the problems they have! Hopefully he’ll go down with the ship. The line of almost bankrupt institutions is so long, and the amounts are so staggering, that there is really no point in getting involved. Very strange behavior by the Fed and it sends mixed signals. If Bernanke is smart, and I don’t know if he is, he’ll let the ship sink and develop a plan to raise the Phoenix from the ashes once all the dust settles. I read that Congress wants Freddie Mac and Fannie Mae to impose a moratorium on foreclosures, and that seems like a perfectly stupid idea as it will encourage everyone not to pay. Human nature being what it is, we all want a bargain and the temptation will just be too much for most folks to resist. No, for the moment it seems as if Bernanke has the right idea: just do nothing.
The markets really didn’t react all that much to the news, although some may say the Dow rally was a direct result of the Fed´s decision. Just because the Fed left rates alone today doesn’t mean we aren’t deflating, because we are, and they know it. The Dow rallied because the December Dow came within 5 points of very strong support at the
10,725 level and I would not be surprised to see a rally continue tomorrow, and even into Thursday morning, but understand well that there is absolutely no bottom in sight. Anyone who thinks there is a bottom is a fool. On a daily chart, the Dow is a long way from being oversold and yet we were well below the July intraday lows today. The December Dow ended the day up 96 points at 11,045 and I would not expect the rally to exceed resistance at 11,263 so I will be selling into any strength tomorrow.
SUPPORT RESISTANCE
DOW 10,817 11,091
10,725 11,263
9,913 11,417
*All prices are for the December Dow futures contract
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