Admittedly, while I wanted more honesty from Ben Bernanke there is always a price to pay for the things we ask for. Although the Federal
Reserve Chairman made what are obvious comments, the fact he had to take the shine off his previously glossy assessments on the economy was unnerving.
In other words, we like it when Big Ben lies to us; we are human, after all. There seems to be a suggestion the economic rally baton can be handed off
to household and business spending as fiscal policy and inventory restocking will not provide the same oomph. The big problem, or "drag" as the Fed
chief put it in his opening statement, emanates from a lack of jobs. Judging the average of 100,000 jobs gained per month in private payroll (no word
on those saved and created jobs) as "insufficient" to reduce the unemployment rate materially only told us what we knew.
But, we were able to
suspend the thought from time to time even as our unemployed brother-in-law keeps blowing up our cell phone. Hey, he was bumming money even when he
had a job. In a week with heavy debate over extending unemployment benefits with paying for them, Bernanke underscored the harsh reality that those
chronically unemployed (about half of total unemployed) face erosion of skills which makes future employment opportunities more difficult. That stuff
didn't send the market lower; however, it was the tone of the testimony which makes it seem as if the Fed is confused, and maybe even frustrated.
There were comments on Europe and its economic crisis being something of a wildcard, but it's clear those early victory laps were premature.
Now, the Fed is relaying soothing comments intended to offer calm but actually doing anything but.
"We remain prepared to take further
policy actions as needed to foster a return to full utilization of our nation's productive potential in a context of price stability."
Immediate actions the Fed might take include starting up its asset repurchase programs and lowering the prime rate. You guys might remember
some of those fabulous programs that saved the economy, right? I do find it interesting on the same day President Obama bragged about taxpayers never
having to bailout banks again, the Fed is hinting at action that would swell bank vaults with cheaper money and buying shakier assets. It was
ill-advised when he said it but "never again" might have lasted an hour. But there is a silver lining; the Fed doesn't see inflation rearing its ugly
head anytime soon. Of course, if the first hike in the Fed funds rate is pushed off until the fourth quarter of 2011 then inflation will be a monster.
SWAT
When I was a kid "SWAT" was the hottest show on television. I can hear the
theme song in my head right now. The show was so cool a couple of friends and myself attempted to propel off a two story building. I slid down so fast
I saw smoke coming from my hands and released the rope dropping to the mattress below (I was a knucklehead, but not that much of a knucklehead). Since
this crisis began the Fed has created what amounts to a variety of SWAT teams with special acronyms and functions.
MMIFF expired Oct 30, 2009, AMLF, CPFF, PDCF, and TSLF
closed Feb 1, 2010 and TALF finally was put to bed June 30, 2010.
If it's back to the toolbox, which means the economy is back in the tool
shed, these are the options:
> Stop selling assets and keep balance sheet bloated
> Lender of last resort
> Provide liquidity directly
to borrowers and investors in key credit markets
> Open market operations (purchase longer-term securities)
The SWAT team is known for its
calm and coolness under pressure. By admitting to being "unusually uncertain" and "uncomfortable" Ben Bernanke seemed anything but calm and cool
yesterday, sending investors ducking for cover. I do feel investors overreacted, but the lack of confidence leaves the market vulnerable to wild
swings, especially to the downside.
Tidbits
According to NPD, the total amount of restaurants decreased by 1% from
April 1, 2009 to March 31, 2010. There are 2,521 less fast food joints and 2,683 fewer casual/fine dining establishments. This is the first time the
number of restaurants decreased year over year since NPD began tracking in 1976.
The Market
An early boost to futures
from European industrial order numbers are very encouraging, and may presage what's going to happen tomorrow when the EU stress test results are
revealed. Let's face it, the fix is in, and there should be a positive reaction even though everyone expects only good news and hence a positive
reaction. Case in point is Allied Irish, which is rumored to have passed the test and its shares are only up marginally. Of course, it would be a
great hurdle. And, we may actually learn something from the exercise because it's clear it's an attempt to mimic what occurred last year after the
U.S. stress tests were concluded.
Earnings
You have to be impressed at earnings out this
morning. It's amazing how well these large businesses maneuver during adverse times and harsh political rhetoric and actions.
Here are a few
names that not only beat, but guided higher:
* LH
* MMM
* RCL
* PM
* UPS
* CAT
* UNP
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