Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Ben 'Buzz Lightyear' Bernanke and the Fed's New Challenge Ahead


Having achieved market compliance, policymakers face more difficult obstacles than they and investors think.

Maybe it is just me, but the investor sentiment of this certainty (that the Fed is willing and able to deliver effective monetary policy to continue to propel markets higher) is saturating. But what I see as a result is no longer well-reasoned belief, but self-assured capitulation and compliance. To talk with investors, the choice is that there is no choice. We believe because we must believe, particularly as everyone else believes as well.

Ironically, what I am afraid that the Fed (and the ECB) has created is a golden cage in which compliance is generously rewarded, while a failure to comply results in financial water boarding. Again, the choice is that there is no choice. As they say in the film The Ten Commandments, for the markets, it is now, "Row and live."

My concerns with this resulting position for the Fed are twofold. First, having announced and resorted to its nuclear option of "unlimited demand for an unlimited period," the Federal Reserve has communicated to the markets that from here on out, we have "unlimited bid, limited offer" markets.

What I am afraid that neither policymakers nor most investors appreciate is that it is not actual demand, but rather perceived demand, that drives market prices. Because markets are driven by social mood and confidence, they are inherently forward looking. And what is perceived to be ahead matters more to price than what is on the table today. Unfortunately, I am afraid that by their actions recently, central bankers globally have taken the perception of future demand to such an extreme that any incremental private sector demand is meaningless. When you already have a market perceived to be made up of "unlimited bid, limited offer," how does another $100 or $200 billion in cash on the sidelines really matter to price?
Position in SH and JPM.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos