One of the more memorable skits in many years of SNL comedy was a recording studio skit in which a music producer, Bruce Dickinson (played by Christopher Walken), requests from the band, more cowbell (played by Will Farrell). The skit was so funny that Jimmy Fallon had to bite down on his drumstick to keep from laughing while playing his part. The best line was near the end when Bruce Dickinson said this line,
"Guess what? I got a fever! And the only prescription…is more cowbell"
SNL "More Cowbell" skit if you like to laugh
I’m mentioning this because Ben Bernanke has been Bruce Dickinson over the past two months. Telling us the market has a fever. And the only prescription…is more quantitative easing. On August 27th at Jackson Hole Wyoming, he had this to say,
"Recently, inflation has declined to a level that is slightly below that which the GOMC participants view as most conducive to a healthy economy in the long run."
Then again, at the recent September FOMC meeting, Bernanke reiterated his viewpoint.
"Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate."
With elections around the corner, and the Senate postponing any politically charged voting (such as extended tax-cuts) until after the election season, that leaves the responsibility to "make things happen" up to monetary policy. It is clear since late July that the Fed is taking that charge seriously with weekly rhetoric on potential quantitative easing and low interest rates. The stock market has run with that notion.
If the economy slacks, we’ll inflate. If housing slacks, we’ll inflate. If the stock market drops, we’ll inflate. The only time we won’t inflate the money supply (more), is if asset prices start to rise again–inflate! When have we ever heard the Fed over the last 30 years say they were ok with having more inflation?? Never.
Catalysts for the market to rise here:
- Notion of quantitative easing.
- Four-month consolidation in the markets from the April top.
- 30% of Fund managers are 5% behind the S&P 500 and 2011 (end of this year’s performance) is around the corner – they can’t just sit in cash and do nothing.
- If the market rises, it will encourage sideline investors to jump in.
- Very low Treasury yields–yes safe, but on a very relative basis. Not safe against potential inflation (as being told by a 00/oz price in gold and /barrel oil).
Now I’ve been focusing on quantitative easing since late July because I think the analysis is very simple, but important. The Fed wants growth. If the Fed doesn’t get what it wants, it will inflate. That sounds like a put on the market. Maybe I should jump into a risk/inflation trade.
There’s a hedge fund titan managing billion that is thinking along the same lines, David Tepper. He had an interview recently with CNBC about how he bought bank stocks last year and now he’s simply buying stocks based on the Fed. Sometimes, investing in the market can be very simple. Oh…the government’s going to buy if things get bad? Then let’s buy. David Tepper explains the current market environment with the Fed Put in simple terms starting at 6:30 minutes into the interview. Have a look!
Source: CNBC
You may have heard from many sources that a double-dip recession is in the cards. Well, I figure if the market rallied after the flash crash in May, the Dow sell signal in July was reversed, and the market created a higher low in August, then maybe it’s time to be less defensive. Stock prices are starting to wake up to the idea of a year-end rally, with a Fed Put backstopping the market. I’m reading reports that Ferrari and Bugatti have sold out their production while other luxury brands such as BMW and Mercedes are tracking higher sales as recovering economies have helped consumers regain confidence. I’m starting to read reports from research analysts that retail traffic is increasing. Americans still need to buy clothing for their growing children. Restaurants are also seeing more traffic. The consumer has left the bunker and he/she’s buying smart phones, LED televisions, and tablet PCs – just in time for the holidays. Consumer confidence rose for September, up to 68.2 from 66.6 for a nice jump. Most of that was concentrated in the leading expectations component. If Apple said nobody was buying their products, then I’d think the end of the world was here and the Dow is falling to 3,000. I’m not hearing that. I’m hearing Bernanke say, “I’ve gotta have more cowbell. I’ve gotta have more inflation."
