Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20
Facebook (FB) AI Mega-trend Tech Stocks Investing 2020 - 10th Feb 20
The US Constitution IS the Crisis - 10th Feb 20
Stock Market Correction Continues - 10th Feb 20
Useful Tips for Becoming a Better Man - 10th Feb 20
Will CoronaVirus Pandemic Trigger a Stocks Bear Market 2020? Part1 - 9th Feb 20
Could Silver Break-out like it did in 2011? - 9th Feb 20
The End of the Global Economy - 9th Feb 20
Fed to Stimulate in Any Crisis; Don’t Let Short-Term Events Bother You - 9th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

The Fed Will Come To The Rescue But Deliberately Late!

Stock-Markets / Stock Markets 2012 Apr 28, 2012 - 11:39 AM GMT

By: Sy_Harding

Stock-Markets Best Financial Markets Analysis ArticleThere can be no doubt anymore that the global economic recovery is in trouble again.

In the U.S. we can see it in the reversals of previously positive economic reports; unexpected declines in durable goods orders, industrial production, new home sales, existing home sales, new home starts, construction spending, new jobs creation, personal income, consumer confidence, small business confidence, and so on.


The Chicago Federal Reserve’s National Activity Index (CFNAI), designed to measure nationwide economic activity, was reported this week to have declined for the third straight month, dropping into negative territory in March.

On Friday, the Commerce Department reported the U.S. economy already slowed considerably more than expected in the first quarter, with GDP growth slowing to just 2.2% from the third quarter’s 3.0%.

In Europe, the 17-nation euro-zone has already slid back into recession.

Meanwhile, the eurozone debt crisis has spread to Spain, the eurozone’s fourth largest economy, where in its recession unemployment has spiked up to 24.4%. On Friday, Standard & Poor’s downgraded Spain’s credit rating for the second time, citing worries about the country’s banking system. There are rising concerns that Spain’s government will not be able to meet its debt obligations and will have to seek a financial bailout, like Greece, Ireland, and Portugal before it. But due to its significantly larger size and larger debts, it would be much more difficult to rescue.

This week the Dutch government collapsed, its president and his cabinet resigning after failure to reach agreement with the opposition on austerity measures to tackle its debt and deficit problems.

Meanwhile, the United Kingdom, which is a major member of the European Union, but not a member of the euro-zone, announced this week that its economy contracted again in the first quarter, its second straight quarter of negative GDP, putting it officially in a recession.

In Asia, China, the world’s second largest economy, has had to lower its slowing economic growth estimates three times in recent months, adding to analysts’ concerns that its economy may be coming in for a hard landing. China’s economy is dependent to a great extent on exports, and its current –account surplus was cut by more than half in the first quarter by weaker export growth.

Also, in a surprise move on Wednesday, Standard & Poor’s cut its outlook for India, Asia’s third largest economy, from stable to negative, and restated its credit rating of BBB-minus, just one notch above junk. The credit-rating service cited its concerns about India’s ability to solve deep-seated problems that have clouded its economic outlook.

The global economic recovery is obviously in trouble.

So where is the Fed?

In each of the last two years when the economic recovery stumbled the Federal Reserve came to the rescue with additional stimulus. And in his press conference on Wednesday, Fed Chairman Bernanke promised to come to the rescue again “if it becomes necessary”. Yet, at its FOMC meeting on Wednesday the Fed decided to do nothing for now.

So what’s going on?

The situation as I see it is that the Fed doesn’t want to repeat its mistakes of the past, of being so accommodative that  bubbles form (in stocks in 2000, and in real estate in 2006). So in an effort to make sure that neither the economy nor the stock market become over-heated, it prefers to let both the economy and stock market periodically slide back and cool off a bit before coming to their rescue at the last minute.

At least that was its approach in each of the last two years.

In each of those years, the Fed waited until worsening economic reports created fears that the economy was actually sliding back into recession, and the stock market was plunging in reaction, the S&P 500 down 15% (in 2010), and 20% last year, before it came to the rescue, with  QE2 in 2010, and Operation Twist last year.

Waiting until the last minute, until the stock market was down double-digits, before providing more stimulus worked well both times, to keep the recovery going without causing either the economy or stock market to become over-heated. So why not again?

Meanwhile, having seen it happen two years in a row, investors are confident they can rely on a similar rescue this year. So unlike the last two years when the market nose-dived when the economy began to stumble, this year the market is showing a remarkable ability to ignore the similar clear evidence that the recovery is in trouble again, perhaps even more trouble than last year.

The potential problem with that, if the Fed is indeed waiting until the stock market joins the economy in sliding back and cooling off a bit before it comes to the rescue, is that the market’s confidence may delay the very rescue it’s depending on, until the economy’s rescue becomes more difficult.

That is what happened with the eurozone’s recovery, as its central bankers waited each time for market declines to tell them they needed to take more action, and by then it was too late, and the crisis worsened.

Just a thought.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2012 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules