Take Bernanke With A Pinch Of Short-Term Salt

Posted by on July 11, 2013 7:11 AM

Fed Chair Bernanke toned down tapering expectations in a speech on Wednesday after the market closed.  This is something we discussed previously when the market reacted negatively to Fed tapering news recently -- that the modern Fed usually doesn't want to be the reason for falling stocks.  We also said the price action (in that case negative) was a short-term overreaction type one that could be easily reversed.  This time around in the pre-open on Thursday, stocks (SPY), bonds (TLT) and gold (GLD) are all reacting very positively to Bernanke's comments -- and the dollar is lower.  Now it seems we're having an overreaction in the other direction ...

Here is what some others have to say about this:

from cnbc.com:

"The "Fast Money" traders share how they're planning to play the market following comments from Fed Chairman Ben Bernanke.

Don't put too much weight on what stocks did after hours following comments from Federal Reserve Chairman Ben Bernanke that called for quantitative easing "for the foreseeable future," StockMonster's Guy Adami said Wednesday.

"I wouldn't necessarily trust this 11-point move to the upside in the S&P," he said. "I mean, say what you want about him, but in terms of the market he's done everything exactly right, seeing the spike here."

The big question, Adami added, was whether stocks would see "a big reversal or carry through" when the market opens.

"Just be a little bit careful here tomorrow," he added.

Bernanke, who spoke at a conference sponsored by the National Bureau of Economic Research, said that the U.S. economy continued to need a highly accommodative monetary policy.

The CNBC's "Fast Money" traders shared how they were planning to play the market following Bernanke's remarks.

RiskReversal.com's Dan Nathan said that the market had already priced in news that had not materialized.

"In a lot of ways people have gotten very comfortable with the notion that the Fed was going to be buying less bonds at some point in the next six months," he said.

Nathan noted the move lower for the U.S. dollar.

"I think you have to be really careful if you want to go in tomorrow and you think it's all clear and buy that opening because if you do have that reversal, it could get nasty," he said, alluding to downturns on May 22 and in June based on Bernanke's comments.

Karen Finerman of Metropolitan Capital Advisors noted that aside from Bernanke's comments, minutes of the Federal Open Market Committee released earlier in the day were less sanguine.

"If you look at earlier comments today from the minutes, there was all kinds of murkiness," she said. "You had a lot of different, more dissenting opinions, I think, than you normally have."

Finerman also noted that gold prices were moving higher, which suggested cautiousness.

"I would not jump in on the open tomorrow and just buy stocks," she said.""

and here are some comments from upsidetrader.com:

"If you ran home at the bell yesterday you missed all the "real" action.  After the close, Bernanke pulled back on any hawkish rhetoric that he ever spoke and told everyone that rates will be zero until the end of life as we know it on planet earth.  Cockroaches and rats will be crawling the earth's surface until well after we're gone, yet Ben's printing presses will still be humming softly in the background.

Bernanke didn't really tell us anything new, but he did clarify his statements of a couple of weeks ago.  Frankly, this will only prolong the agony of getting the markets reacclimated to an eventual tightening, but for now the tape should rip.

It was nice to see the market start to embrace a higher dollar and higher rates for a few weeks, now it will be back on the Fed feedbag, watching every grunt, groan and facial twitch from Bernanke and his Fed. Too bad in a way.  Data dependent.

I guess all Bernanke did back on June 19 was just put out a "feeler" when he petrified the planet with taper talk.  The Fed didn't like the reaction. The $SPX dove about 90 handles, but then something strange happened, we rallied hard off the lows as the market embraced the new reality of higher rates..  That was a good thing and showed great resilience by the market.  The dollar went up, rates ticked up, but most importantly, the market went up in lockstep.  Very bullish action when that happens.  Now we're back on the central planner's teat.  Stocks love it, and I'm longer than Georgia pine so I'm cool with that, but once again we have delayed the inevitable.

I think Bernanke thought the housing market would get away from him, as mortgage rates ripped and housing stocks got buried. Ben didn't like that.  Kuroda and Draghi have their mentor and buddy back for a while, as they're all organizing a central planner gig at the Bellagio in the fall.  Should be a hoot.

If Bernanke is having trepidations about hitting his 6.5% employment target (LOL), then ever getting back to "full employment" is a pipe dream. Hilarious. Keep dreaming.

It's all good for stocks,  but Bernanke continues to day trade the economy."

And just as a reminder of previous Bernanke mis-speaks and reversals,  this from upsidetrader.com:

""The Federal Reserve is not currently forecasting a recession." Ben Bernanke, Jan. 2008

"The Federal Reserve cuts the funds rate to 0.25% and announces unconventional measures to take country out of recession."- Bloomberg December 2008

Yes Ben, do give us some more of your prognostications about future unemployment, inflation and growth.

In March of or 2007, Ben told us this:

"At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency."

Hey Ben, what are your feelings on assisting banks and other lenders should they get in trouble?

"It is not the responsibility of the Federal Reserve - nor would it be appropriate - to protect lenders and investors from the consequences of their financial decisions." -October 2007

Hey Ben I'd love to know your opinion on housing.

"Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise." -May 2006"

Bottom line here is take Bernanke's latest comments with a grain of salt -- we had previously discussed how a weak-willed Fed (and government) would be trepidatious about doing real tapering and would likely push off and delay the program as long as possible (for political and stock market reasons).  That's exactly what Bernanke did yesterday.  Now the next over-reaction will likely be when tapering is seen as back on and after that speculation about who/when will eventually replace Bernanke.  That's why over-reacting in one direction or another at the current Fed is dangerous.

 

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