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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: elmatador who wrote (7250)	6/16/2006 8:35:41 AM
From: elmatador	Respond to of 217592

This Market Mess Is About More Than Ben Bernanke. Too simplistic to lay all the blame for the current malaise at Bernanke's office door. This Market Mess Is About More Than Ben Bernanke.: Chet Currier June 16 (Bloomberg) -- Whenever the securities markets start to quiver and quake, all eyes turn to the chairman of the Federal Reserve. Who else could have gotten us into this mess but the boss at the U.S. central bank, one of the most powerful people in the world? And what is he going to do to get us out? This fixation is only intensified when the Fed head is new on the job -- as is the present chairman, Ben Bernanke. He succeeded 18-year veteran Alan Greenspan on Feb. 1. ``Everyone is asking whether we are in the Bernanke Crash, similar to the Greenspan Crash,'' says Edward Yardeni, chief investment strategist at mutual-fund manager Oak Associates Ltd. in Akron, Ohio. Fair question. Greenspan arrived at the Fed just a couple of months before the Dow Jones Industrial Average fell 23 percent in a single harrowing day, Oct. 19, 1987. Almost two decades later, the markets are making a big show of testing Bernanke's mettle like a crowd of playground bullies taking the measure of a new kid in school. But nobody thinks the Crash of 1987 was entirely, or even mainly, a story about Greenspan. Likewise, it would be way too simplistic to lay all the blame for the current malaise at Bernanke's office door. Full Agenda The Fed has enough to do keeping watch on inflation and employment without being asked to ensure that the securities markets remain both calm and prosperous at all times. Indeed, financial market risk is an essential component of the economic system, and market risk should never be managed away -- even if we assume that the Fed could do that. Without risk, there is little or no restraint on the excesses of greed and speculation to which all markets are prone. Risk performs that essential function best when it makes itself palpable every now and again. When a speculative bubble formed in technology stocks at the end of the 1990s, many a finger was pointed at the Fed. The central bank caused the bubble, the critics said, by supplying the system with too much cheap and easy money. This has always struck a slightly false note with me. It's a bit like a guy with a hangover blaming his bartender for setting the price of the drinks too low. Balancing Act Nevertheless, the point here about price (in this case, Fed-influenced interest rates, the price of money) is well taken. Prices of all kinds serve as a continuous balancing system --between supply and demand, between greed and fear, between risk and reward. Prices contain vital information that may be available nowhere else. We may not like what they have to tell us, as when we go to fill up the family sport utility with gasoline. But quite often price bears a message we will benefit from heeding in the long run -- e.g., maybe we are consuming too much of this stuff. In investment markets, price also may provide us valuable information. Hark back to April 28, when silver prices in New York surged 8.3 percent, for their biggest gain in 11 years, as an exchange-traded fund backed by silver made its debut. Any alert investor might have seen that price action as a clear sign of unsustainable speculative frenzy, and sold his silver holdings at that day's July-delivery price of $13.63 an ounce. By this week, he could have bought the same ounce of silver back for less than $10. Backlash It is no stretch to interpret the stock market's recent decline as a natural reaction against over-speculation -- too much unchecked enthusiasm for commodities, for emerging markets investments, for small-cap stocks both globally and in the U.S. A critic can reasonably argue that this speculation was aided and abetted by the Fed's policy in holding short-term interest rates too low for too long. Remarkably, as the Fed has raised its target overnight bank rate from 1 percent to 5 percent over the last two years, longer-term interest rates in the bond market have barely risen at all. The yield on 10-year Treasury notes, about 4.8 percent two years ago, now stands at about 5.1 percent. Bond traders, not the Fed, call the shots in this market. While the stock market has supposedly been spooked by inflation fears, the bond market -- which is famed for its sensitivity to inflation prospects -- has shown few signs of alarm. We get that information from a most reliable source: Prices freely determined in an open, worldwide market. That makes it potentially some very good information to have. (Chet Currier is a Bloomberg News columnist. His opinions are his own.)