Wednesday, June 20, 2012

Market Response to Fed Moves More Worrisome Than Reassuring

It's funny how everything seems to work out just as planned, but markets respond in their own unusual ways.

Such was the case today, as the FOMC announced no substantive changes to their ZIRP program and extended "operation twist," designed to spur the economy by having the Fed buy up the long end of the yield curve.

Memo to Bernanke: It ain't working.

All the tricks and ploys the central bankers have up their collective sleeves have now been tried and proven to have failed. Massive injections of liquidity may have temporarily bolstered the balance sheets of some of the world's largest insolvent banks - both here in the US and in Europe - but the one proven method of clearing out bad debt that hasn't been tried - default, repudiation, bankruptcy and restructuring - is the only way the world economy is ever going to get a solid kick-start.

The Fed and its counterparts in Europe, Japan and China seem to believe they can somehow suspend rules of economics and mathematical certainty. They are wrong, and continue to be proven so every day the global economy continues to carouse through its now nearly four-year-old funk.

The action on the stock market today can best be described in horse racing terms: it was what handicappers like to call a "Z." It's when a horse starts slow, rallies in the middle of the race and then fades down the stretch to the wire. Sometimes, it's a sign that the horse may do well in a subsequent race; usually, it means little, other than the horse was ridden badly or suffers from a lack of stamina.

That analogy could easily be applied to the stock market. It has been "ridden badly" by all the desperate attempts to justify prices and it sure looks like it has been running on empty for some time now.

Today's response to the policy decision to keep rates at or near zero and the Fed's tepid reliance on the "twist" program that only produces marginal support for the economy if any at all, is another shining example of the futility of central baking, government overspending and general malaise. Now, even the cheaters, swindlers and fraudsters on Wall Street aren't happy.

Serves them all right, since most of them should have been serving long prison terms by now. Well, maybe there's hope. After all, the price of gas at the pump keeps going down nearly every day. If nothing else, at least it will be cheaper to take the car out when it's time to head for the hills.

Dow 12,824.09, -13.24 (0.10%)
NASDAQ 2,930.45, +0.69 (0.02%)
S&P 500 1,355.70, -2.28 (0.17%)
NYSE Composite 7,747.91, -18.35 (0.24%)
NASDAQ Volume 1,477,882,125
NYSE Volume 3,637,796,250
Combined NYSE & NASDAQ Advance - Decline: 2639-2903
Combined NYSE & NASDAQ New highs - New lows: 156-27
WTI crude oil: 81.80, -2.23
Gold: 1,615.80, -7.40
Silver: 28.39, +0.02

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