MM, there were two interesting developments involving the Fed in recent months that I don't think anyone picked up on, or at least didn't make enough of.
The first is that it appears AG never cared about stock valuations, despite his protestations about wild exuberance. His San Francisco speech in September made clear for the first time that what concerns him is the effect of wild swings in stock prices on the real economy. I thought that was pretty interesting, and worth knowing going forward.
The second thing -- and I should say to begin with that I am not one for paranoid theories about market makers and the like -- is that rumors of the impending second rate cut began as the market was revisiting its bottom on Oct. 8. It may sound crazy, but it wouldn't surprise me if the Fed floated the rumors knowing the importance of preserving the market's bottom. I haven't seen this anywhere else, but there was, after all, some evidence that the Fed intervened to prop up the stock market on Oct. 20, 1987; some of the big blue chips suddenly showed upticks on very light volume (1,000 shares or so), and there were rumors that the Fed permitted some market makers to manipulate prices to stem the panic. It's possible the market might have formed a double-bottom anyway, though, and I'm just imagining the connection, but it's worth considering.
What does all that tell me? That the Fed has more power than just the blunt instrument of interest rates, and it really is true that you should not fight the Fed.
Paul |
