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
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
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

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

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.


© 2005-2019 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

6 Critical Money Making Rules