Prepare yourselves for a wheelbarrow full of media and blogger stupidity this week as the Kansas City Fed Symposium gets underway at Jackson Hole, Wyoming. Sample headline: “Will Jackson Hole Save Stocks?” Allow me to frame the discussion and then I’ll share my thoughts on the topic.
The consensus among stock guys is that if Chairman Bernanke “opens the door” for more stimulus in his remarks, then the market’s summer slide may come to an end. Conversely, should anything less than accommodative notions tumble from his bearded maw, stocks may find it tough to find any buyers given the softening economy.
As an aside, it’s interesting to note that teenage boys in Wyoming actually use “Jackson Hole” as a slang term for, well, use your imagination.
Browse any of the analyst previews of Bernanke’s hotly-anticipated Jackson Hole remarks coming this week and you’ll find some variation on the following:
“Markets may be disappointed or in for a long wait as core inflation and politics will keep the Fed on hold instead of announcing QE3.”
I have a few thoughts here.
First, I hope the Fed does not embark on QE3. After 40 years of pain avoidance, can we just rip off the f**kin’ band-aid already? Enough with the asset price protection, it is the root cause of everything bad about the economy right now. Had we saved the banking system and said f**k the banks themselves, we’d be two thirds of the way out of this by now. Had we gone Swedish instead of Japanese and said the banks are now “Wards of the State” until cleaned up, then yes, we probably would have seen Dow 5000…but so what? Was stopping at Dow 6500 so much better? We would have had an unencumbered financial system at this point, one healthy enough to cope with a new leg down in housing, rather than the debt-ridden George Romero zombie film we find ourselves re-watching every quarter.
Pain avoidance and shortcuts is what we got instead. Nobody gets fired and nobody upsets the banking-government nexus too much. There are campaigns to be financed after all.
No wonder Obama put Volcker on ice as soon as he Dracula-sucked the Street Cred right out of his neck. Volcker was probably telling him to fire everyone, take over the systemic banks, prosecute the asshole executives and piss off everyone in the short-term for the good of us all in the future. Obama’s too eager to please to go down a road like that.
The bottom line is this: If the Fed chooses to stay mum on further stimulus, it is The Why I’ll be most focused on.
We know Bernanke won’t admit that the political appetite for more stimulus isn’t there nor will he concede that core inflation is a risk. But I think we’ll be able to glean which one of those is preventing QE3 from the wording of his speech. Ben delivers speeches in plain English, as opposed to those old Greenspan epics during which Easy Al would offer a review of a German opera or a salt water taffy recipe as the WASPs in Congress sat there nodding their full-heads-of-hair pretending to follow him. Greenspan was so talented at talking circles around us he could’ve broken up with a girl while leaving her with the impression that she’d just been proposed to.
But what I’d really love to hear this week is this (a major longshot):
“No, we’ll not do QE3 because QE2 simply didn’t work. It temporarily jacked up stock and food and energy prices but it resulted in zero hiring, zero new business activity and zero real estate market amelioration.”
That’s the true reason why there should be no QE3, not inflation and not the Tea Party. Unfortunately, you will never hear it uttered. Which tells us that the Fed and Treasury have learned nothing or simply won’t admit to what they’ve learned. The White House either.
The difference is not whether stimulus is on hold for now, the difference is Why.