LG and all--I read the Economist piece about Greenspan and the bubble economy last night, which combined with yesterday's action gets me thinking that only external-to-US forces have any potential of pricking this bubble. The Fed has fully bought into moral hazard. They will protect equities in case of a crash and do nothing to instigate one. That is, until their hand is forced. Only higher interest rates abroad will force their hand. The US is already trying to force Japan to relax any semblance of restraint on their monetary system. Japan is already in a liquidity trap and can do little to help themselves by lowering interest rates below zero. The only thing that can take this stock market down is conservative practices by european central bankers, keeping interest rates up and the euro strong. That will force the Fed's hand. Interest rate increases in the US will be necessary to keep the dollar from deteriorating. If, indeed, the european central bankers begin to imitate easy Al, look out above, it's melt up time.
I was, for a short time yesterday, proud of the Fed for their announced tightening bias. But, after the initial pronouncements we see all of this interpretation that it doesn't really mean much and we don't like to do it anyway (annnounce the bias) and we are feeling our way with this practice. What a bunch of ..... These guys are fully complicitous with the bubble and duplicitous in their actions. Still, I think that they will attempt to keep the stock market in check in here. If it rises, look for them to pounce. If it falls, look for them to flood financial markets with liquidity. All of this in an attempt to let the air out slowly. Only, I don't believe they have a let the air out strategy. They may have a don't let any more air in strategy.
With the Fed out of the way for a while, the bias in the market will probably be positive, but I don't think excessive. |
