If Not Now, When Mr. Bernanke?

Even while US markets are closed in observance of Martin Luther King Day, global equity markets are experiencing their worst sell-off since 9/11. While most sell-offs of this magnitude typically can be traced to a single catalyst, today's declines do not seem to be based on any specific news event that was not already known in the markets last week. Instead, the declines appear to be rooted in a loss of confidence on the part of global investors over the current handling of the credit crisis.

With today's declines, the benchmark equity indices of several countries are now in 'official' bear markets. Based on the current levels of S&P 500 futures (which are likely to change between now and Tuesday morning), the S&P 500 is likely to open tomorrow 19% below its intraday high reached October 11th. Fed Chairman Ben Bernanke has repeatedly told the public that the Fed was ready to take "substantive additional action as needed to support growth and to provide adequate insurance against downside risks".

Fortunately for us, Bernanke has done extensive scholarly research on preventing stock market crashes and depressions. Unfortunately for us, he has yet to put that research to use.

It's very ironic that saying they're "ready to act" has caused a lack of confidence and now forced them to act. Last week's declines of 5% are likely to be matched in one day's worth of trading tomorrow, so the question remains -- what are they waiting for? Do the headlines above and the numbers below call for a need to act? If not now, when Mr. Bernanke?

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Comments

[Lance]

If the Fed has to react to every market correction, then something is wrong with the market. If the market is going to "crash" unless the Fed acts, then something was already wrong with the market.

Maybe they want to do something. But maybe they want to do something at a time when the market isn't going to drive over them like cheap roadkill 5 minutes after they do it. You get more bang for your buck by picking your shots carefully. It's also very doubtful that the situation is that dire, except perhaps to people who thought S&P 1550 five years into a bull market was a good place to hop on board.

I'd like to see this panic extended a few days so I can buy some values. I don't need a 5 percent Fed-induced burp that will fade like last summer's suntan, thanks.