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Will Bernanke Be Bullied?


Fed shouldn't cower every time Street barks.

When I was a child, my mother taught me to fight back when bullies confronted me, and being an outsider when I arrived in New York I was like a bully-magnet.

I was reminded of that tough transition yesterday as I watched Wall Street gang up to bully the Federal Reserve, with the help of a lot of entities that I feel don't have Americans' best interests at heart.

The most effective tool of the bully is humiliation and yesterday this tool was used on the Fed in general and its chairman, Ben Bernanke, in particular.

To a lesser degree, the market also may have been voicing displeasure with the White House's decision to play nice with North Korea. Once the president announced that he'd basically let Kim Jong-il off the hook, equity futures, already under pressure, shifted into another gear to the downside.

Returning to Bernanke: In the movies, the bullies always turn out to be punks once they are confronted, but in real life it doesn't work that way. One reason, drawn from my own childhood experience, is that sometimes there was one of me and a dozen of them.

Ben Bernanke is standing alone as well, and right now it must feel like everyone's lining up to push and kick him. He fought back on Wednesday, only to be pummeled via the stock market yesterday.

It was only weeks ago that the Street was demanding the Fed cut rates and their posturing, threats and sell programs forced the Fed chairman to move into action. Now the Street is looking for a rate hike.

I bet the Street wouldn't be happy with a little hike, either, as 25 basis points isn't going to be enough, but whether it's the right move or not almost doesn't matter, as I feel the integrity of the job is on the verge of being compromised.

When Paul Volcker began raising interest rates it was very unpopular, but he just chomped down on his cigar and ignored the critics. Of course, it didn't hurt that Volcker was a giant with an attitude to match. Maybe Bernanke was the meanest economics profession in the Ivy League but in my opinion he isn't intimidating anyone on Wall Street.

So, will the Fed chairman blink?

I think so and he might be applauded with a rally but there would be something deeply wrong with the Fed cowering every time the Street barks.

I do think it's time and raising rates is the right thing to do, but I also think it is unreasonable to the Fed to shift gears just like that. Imagine a gear shift box that only had P, D and R as options.

That N provides a useful service beside being the gear to shift into when the gas tank is on E and you have to limp down the road for a couple of miles.

On a related note regarding the markets, I believe it's not the weak dollar driving up oil now but oil rallies driving down the dollar. The tail is wagging the dog because it's the only trade that's working and the hype is over the top.

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No positions in stocks mentioned.
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