To state the obvious, the market action of late has been incredibly volatile and deceptive, even though there hasn't been that much trading volume and bouts of volatility have been interspersed with dull periods.
As recently as Aug. 27, when Intel (INTC, news, msgs) announced a likely revenue miss, the market seemed ready to get shellacked. But it miraculously recovered, leading me to think it might trade higher.
However, the Aug. 30 session made it look like the previous Friday's rebound never had happened, with the market once again getting shelled. Then the following day, the market at times appeared about to fall further apart, but each time it stabilized, leaving me -- and, I assume, most everyone else -- confused as to what might happen next.
That question was resolved with a big blast higher Sept. 1. It seemed that having weathered those rough waters, stocks might hold together for a while.
Part of the reason for the outsized move to start the month may have been the lopsided bearishness at the end of August (e.g., that week's reading from Investors Intelligence showed the lowest number of bulls among investment newsletter editors since March 2009, not to mention being one of the lowest totals of the past 20 years).
That doesn't mean stocks have to rally, but it does indicate a lot of people have already prepared for lower prices, making the crash that many seem to expect less likely (a point I have made a number of times).
Of course, the reason for economic weakness, high unemployment and poor performance of the stock market is the real-estate/credit bubble, brought to us primarily by a reckless and incompetent Federal Reserve.
A chairman in denial
As if to remind us of central bankers' inability to "get it," Sept. 2 saw Federal Reserve Chairman Ben Bernanke testify before the Financial Crisis Inquiry Commission. He continues to be in denial regarding the Fed's role in the bubble, and he claimed that monetary policy was not the main cause of the housing/credit debacle, which is false.In addition, he stuck to the party line about how tools such as interest-rate and money-supply adjustments are too blunt to be used against asset bubbles because of their "large side effects." In keeping with the talking points of the Fed's Alan Greenspan era, Bernanke seems to hold the view that, gee, if we raised rates we might do a little damage to more than just the asset markets, and we sure wouldn't want to do that.
Yeah, Ben, I think you're right. It's better to pursue a wide-open, reckless monetary policy, thereby nearly vaporizing the financial system while wiping out huge chunks of people's net worth (some of those people didn't know any better; others were just greedy). Not to mention the damage done to all the innocent people who lost jobs in the economic fallout that followed the collapse of the real-estate house of cards.
If you asked most people today, I am sure they would wish that the Fed hadn't been quite so worried about the potential "bluntness" of sensible policy, such as higher interest rates when speculation runs wild.
It is maddening to see the Fed cling to its belief that there can never be too much of a good thing when it comes to printing money. I am not shocked that Bernanke believes this, but the Fed is going to continue to be the engine of instability until it is taken off the we're-smart-guys-and-know-how-much-money-to-print standard and put on something like the gold standard, or a variation of that, whereby "brilliant" economists who become chairmen and Fed staffers can't play out their financial-engineering fantasies quite so easily.
Until that happens, gold itself offers protection from the Fed's policies.
