One Step Back from the Abyss
April 27th, 2011 - 11:53 am
Ben Bernanke — in a first-ever Fed press conference — says that QE2 will end on schedule in June. I have never been quite so happy to be wrong, as I thought there was a better-than-even chance of the Fed launching QE3 this summer. We might even see some relief from rising prices on oil, gold, and other commodities.
That’s the good news. The bad news is, what might happen to the Dow now that the days of easy money are half-over.
Why worry about the Dow? 1) It’s a fairly arbitrary selection of stocks that represents the state of the US economy about as well as your average horoscope predicts your future (probably not the best analogy to use if progressives are reading this, but whatever).
2) If it tanks, it’ll be Obama’s fault.
Golly. Why indeed?
Well — maybe because it represents a lot of wealth and liquidity. And maybe also because, for all its faults, QE2 has goosed the Dow to create a “wealth effect” to keep our anemic economy somewhat above water. And maybe because that’s where a lot of retirement wealth is held. And, gosh, maybe another crash would provoke the Fed or the White House or Congress (or all three) into doing something stupid again.
But other than those little reasons, yes, the Dow is just arbitrary and meaningless.
Hoping and praying that they leave it alone… I’d really like to not have extended family living with me, y’know?
The precious metals market sure isn’t buying it. They’re back to parabolic increase mode. I’d love to be wrong about that.
Thanks for reminding me, I want to buy some GLD puts soon.
Good luck with that. Never stand in the way of a parabolic bull market until it’s broken the parabola.
I see little evidence of that liquidity being put to good use in our economy.
For that matter I suspect much of the Dow’s rise is due to the same shortsightedness that characterized the last bubble. Any distortion of the markets will eventually require an adjustment. Is it your contention that “wealth effect” is wealth?
I kind of doubt we’ll see much relief in commodities. Low rates made testing prices riskless, but knowing the limits traders will keep them here. They’ll only come down when the economy buckles under the pressure.