Best of the Week
Most Popular
1.How U.S. Dollar Destruction Threatens the Global Economy - Steve Forbes
2.Why UK House Prices Will Continue Rising - 'It's Immigration Stupid' - Nadeem_Walayat
3. Bitcoin Price at Beginning of a Move up? - Mike_McAra
4.Gold Price to Plunge, Visiting Fort Knox - David_Hague
5.Silver Price Forecast - Metal to Gain Ground in August on These Factors - Jim Bach
6.Gold And Silver Will Rise With US Dollar Demise, Just Not Soon - Michael_Noonan
7.Bitcoin Price Strong Move Possible - Mike_McAra
8.Israel Gaza War Crimes - Soldier's Ordered to Shoot Civilians Including Children - C4News - C4News
9.UK House Prices Crash Warning - Daily Mail Cognitive Dissonance - Nadeem_Walayat
10.UK House Prices Boom - Top Quick Cheap Tips to Help Sell Your Home - Nadeem_Walayat
Last 5 days
Gold Rising Interest Rate Fallacy - 22nd Aug 14
Jackson Hole: Myth of the All Powerful Central Banker Continues - 22nd Aug 14
Partying On In The Terror State - Thank God for Nuclear Weapons - 22nd Aug 14
The Something for Nothing Society - Lifecycle of Bureaucracy - 22nd Aug 14
Hitting The ISIS Panic Button In The Middle East - 22nd Aug 14
US Stock Indices 10-Year Consolidation Patterns ... Upside Breakouts? - 22nd Aug 14
Gold and Silver Price Getting Set To Explode Higher - 22nd Aug 14
Deflation's Final Curtain Call - Part II - 22nd Aug 14 - Clif_Droke
Gold Big Picture: Most Important - 22nd Aug 14
How the “Uncertainty Factor” Drives Crude Oil Prices - 22nd Aug 14
Inflation, Interest Rates, and Why You Should Own Gold - 22nd Aug 14
U.S. Interest Rates Can Rise States Fed President - 22nd Aug 14
Why Emotional Discipline is Key to Trading Success - 21st Aug 14
Getting the Most Value from Your “Geriatric Cruiser” - 21st Aug 14
Mafia Boss Claims Stocks A Bubble, Buy Physical Gold and Silver - 21st Aug 14
Outrage! On The Beheading of Our Media Brother James Foley - 21st Aug 14
Stock Market Crash a Historical Pattern? - 21st Aug 14
The Black Box Economy - 21st Aug 14
The Bond Market is taking Advantage of Janet Yellen`s Dovishness - 21st Aug 14
Meet Your Investment Manager - 21st Aug 14
Gold and Silver Trading Alert as U.S. Dollar Soars to New Highs - 21st Aug 14
President Obama Strongest Statement Yet on Israel Gaza War - 20th Aug 14
Peak Gold? Russia To Surpass Australia As World No 2 Gold Producer - 20th Aug 14
AI, Robotics, and the Future of Jobs - 20th Aug 14
Stock Market Investors What's Your Exit? - 20th Aug 14
The Gold War - Thinker, Trader, Holder, Why? - 20th Aug 14
Ukraine Interest Rates Soars to 17.5% As External Debt Cannot be Repaid - 20th Aug 14
Rising Interest Rates and The End of Stimuland - 20th Aug 14
Inflation Watch: $245,000 to Raise a Child in United States - 20th Aug 14
Inside the Stunning Deal That Put Apple and IBM on the Same Side - 20th Aug 14
The US Gold in Fort Knox is Secure, Gone, or Irrelevant? - 19th Aug 14
Bitcoin Price On The Brink of a Possible Reversal - 19th Aug 14
Why Tesla Stock Price Will Double in the Next 12 Months - 19th Aug 14
Europe's Economic Malaise: The New Normal? - 19th Aug 14
The Coming U.S. Economic Collapse Will Trigger a Revolution - 19th Aug 14
Market Bubbles, Bubbles Everywhere - 19th Aug 14
This is Your Economic Recovery With and Without Drugs - 19th Aug 14
Stock Market Strong Start to Jackson Hole Week - 19th Aug 14
Iraq, Ukraine - Oh, What A Tangled Mess We Weave - 19th Aug 14
How to Apply Moving Averages as a Trading Tool - Video - 18th Aug 14
Why Short Stock Traders Are Losing Money This Week - 18th Aug 14
Stock Market Rally May be Complete - 18th Aug 14
Why Chinese Citizens Invest In Gold - 18th Aug 14
Palladium Reaches 13-Year High Over $900 oz as Gold Trading Volumes Surge 66% - 18th Aug 14
Understand and Profit from Surging European Volatility - 18th Aug 14
No Escape from The Dollar as The Currency Standard - 18th Aug 14
Stock Market New Highs Less Certain - 18th Aug 14
German Stock Market DAX About To Drop - 18th Aug 14
Stay on Board - Stock Market Big Picture - 18th Aug 14
Europe Economy Is Tanking, QE Is Coming - 18th Aug 14
Are You Ready for The Greatest Technology Revolution Yet? - 17th Aug 14
Why King Coal is Bigger than Oil or Gas - 17th Aug 14
U.S. Empire of Death and Lies - 17th Aug 14
Ukraine - Whose Spin Are We Caught Up In Here? - 17th Aug 14
Time Decay And No Escape For Abenomics - 17th Aug 14
India BSE SENSEX The Party Is Over In Bombay - 17th Aug 14
Stock Market Uptrend Looks Underway - 17th Aug 14
The Key Role Of Conspiracy Theory In Dumbing Down Society - 17th Aug 14
The Federal Reserve in Denial Mode - Bond Market Explained - 17th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

The Time Has Come Mr. Bernanke for More Stimulus!

Stock-Markets / Economic Stimulus Jun 02, 2012 - 02:26 PM GMT

By: Sy_Harding

Stock-Markets

Best Financial Markets Analysis ArticleFor several months Fed Chairman Ben Bernanke has been assuring Congress and by extension, investors, that the Fed stands ready with ammunition to re-stimulate the economy “if it becomes necessary.”

It has become necessary.


In each of the last two summers the Fed waited until the economic recovery had stumbled near the point of sliding into recession, and the stock market correction was close to crossing the 20% line into a bear market, before coming to the rescue (with QE2 in 2010 and ‘Operation Twist’ last summer). And it lucked out. Both times the economy picked up for another six months before rolling over again. Both times the stock market recovered and resumed the bull market that has been in place since early 2009.

But the global problems of the last two summers were picnics in the park compared to what is going on this year. Sure, both times the eurozone debt crisis had reared its head again, and there were worries about how much it would cost to bail Greece out, and how much it would cost to put a ‘ring fence’ around the rest of the eurozone.

However, this year we are witnessing a train-wreck of historic proportions taking place in the eurozone, Greece expected to fall off the tracks and tumble clear out of the eurozone, with who knows what results to the European financial system, with Spain’s train following and now potentially piling into the wreckage, while economically the 17-nation eurozone is already clearly in a worsening recession.

In the last two summers, the worries from Asia were merely that China and India faced rising inflation, and in their efforts to bring it under control might slow their booming economic growth, which could have a marginal effect on economies elsewhere.

This year, Asia’s problems are much worse. The slowdown in China, the world’s second largest economy continues to worsen. Its manufacturing output has declined for seven straight months, with its HSBC PMI now running under 50, indicating recessionary contraction. India reported this week that its economic growth slid to its lowest level in nine years.

In South America, Brazil, the world’s 7th largest economy, cut its official interest rates to a record low this week in an increasingly desperate effort to re-stimulate its slowing economy.

And then there are stock markets, which tend to lead the economy by six to nine months. They sure don’t seem to like what they’re seeing down the road.

While in the U.S. the S&P 500 has declined less than 10% since mid-March, global markets outside of the U.S. have been in serious corrections. The stock markets of the world’s next 11 largest economies have plunged an average of 18.4% and show few signs of bottoming. Several have exceeded the 20% decline that defines entry into a bear market.

Meanwhile, U.S. economic reports have been grim for several months, and the additional dismal reports this week do not encourage the thought that the U.S. recovery can get back on track on its own.

The week’s reports included economic growth (GDP) for the first quarter being revised down to just 1.9%, from the previously reported 2.2%. Consumer Confidence fell in May in its biggest monthly decline in 8 months (versus forecasts that it would rise). The Pending Home Sales Index (contracts for future home sales) fell 5.5% in April, its first decline in 4 months. The closely watched Chicago PMI, which measures business conditions in the Fed’s Chicago region, fell to 52.7 in May from 56.2 in April. Any number above 50 indicates that businesses are still expanding, but it was the third straight monthly decline, clearly headed in the wrong direction. And the national ISM Mfg Index dropped to 53.5 in May from 54.8 in April.

On Friday, the Labor Department released a bomb of a jobs report. Only 69,000 new jobs were created in May, versus already pessimistic forecasts of 150,000. And perhaps worse, as it provides further evidence that the economy has been weaker even than feared, the previous report for April that 115,000 jobs had been created was revised down to only 77,000.

For the Fed, as the U.S. economic recovery stumbles again this summer, that’s a much uglier backdrop than in the slowdowns of the last two summers.

It makes it much less likely the Fed will luck out if it waits until the last minute to come to the rescue this time. In fact there’s no assurance that the Fed even has firepower that will work this time. But at least an effort might pick up confidence enough to make some difference.

Observers believe that stimulus needed to reinvigorate China’s economy is on hold until the Chinese government leadership changes in October. But, analysts expect the European Central Bank to step in with renewed stimulus efforts next week.

The Fed’s next FOMC meeting is June 20. Expectations have been for it to take no action. But this week’s economic reports and further plunges in global stock markets should change its mind. It’s time for the Fed to act.

In the interest of full disclosure, I don’t really mind what’s going on. My indicators came off their October buy signal in mid-February, and I and my subscribers took our profits, and we currently are 40% in ‘inverse’ etf’s (SH and RWM), and 60% in cash. But, it’s not as much fun to make profits from the downside when many are experiencing losses again.

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.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

gAnton
02 Jun 12, 20:42
The Bankers Best Friend

Well, FED stimulus seemed to work before–why might it not work this time?

Well, first of all, “before” the EU and EURO currency were not in the advanced stage of going to hell in a handbasket.

Secondly, “before” the China economy was not in decline and on the verge of a USA 2008 style real estate bust.

Thirdly, every past FED action has had many negative effects on the economy, such as weakening of the dollar, inflation, much higher soverign debt, etc.. In other words, Dr. Bernanke’s patient (the economy) is basically in much worse shape than ever before because of Bernanke’s past treatments.

When Bernanke uses the word “recovery”, I assume he means an economy with the economic statistics similar to those of the economy before the 2008 bust. But that wasn’t a healthy economy–it was an economy on the verge of a big bust.

It should be clear by now to everyone that all of the

results of Bernanke’s past efforts were at best cosmetic and temporary, and at worst illusionary or catastrophic.


Post Comment

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

Free Report - Financial Markets 2014