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Taking No Chances?

Daily State of the Markets
Tuesday Morning - March 27, 2012

Publishing Note: I am traveling a bit this week and remain unsure of my early morning schedule. Thus. my "Daily State" reports will be published as time permits.

Good Morning. By now, everybody knows that it was none other the Ben Bernanke that stoked the bulls' fire on Monday. The Fed Chairman basically said that although the economy is improving (something the FOMC acknowledged at their last meeting), the country's GDP is not growing fast enough to create the jobs needed to get the unemployment rate back down to more palatable levels. In short, Bernanke's not satisfied and feels the Fed can do more.

Specifically, Gentle Ben told the National Association of Business Economics yesterday before the opening bell on Wall Street, "Further significant improvements in the unemployment rate will likely require a more rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies."

It's that last part that got traders' collective attention. You see, up until yesterday morning, stock market players had all but written off the idea of the Fed doing anything more to lend the economy a hand. First of all, with interest rates at 0%, inflation creeping up a bit, and the Fed already having spent something on the order of $2.3 trillion trying to keep rates low, a great many analysts contend there isn't much more Bernanke's bunch can do.

However, that one part of that sentence from Bernanke's speech seems to have put the idea of some sort of additional policy assistance back on the table... "A process that can be supported by continued accommodative policies"... hmmm. The question, of course, is if that line and others like it were uttered in defense of the work that the Fed has already done or intended to lay the groundwork for another type of operation twist or maybe a "sterilized QE."

Don't forget that Bernanke is all about transparency in the Fed's communication. As such, the bulls argue that the man who once said he would drop dollar bills out of a helicopter if he had to is letting the markets know that the Fed isn't done. Or at the very least, Mr. Bernanke was telling the bond market not to expect any increases from the Fed anytime soon.

Let's also not forget that Ben Bernanke is one of the foremost experts on the Great Depression. And given that he has lived through the 20-year Japanese deflationary spiral, I'm of the mind that Helicopter Ben isn't planning on taking any chances here. Whether you believe the Fed Chairman's plans are right, wrong, or indifferent, it is clear that Bernanke is hell-bent on avoiding a deflationary spiral here in the U.S. Because once it gets started...

So, while the bears will tell you that stock market's rally is extended, that investors are too complacent, that Europe is becoming a problem again, and that things aren't as rosy as they seem in the good 'ol USofA, the bottom line is that IF (a big IF) Ben Bernanke does intend to find yet another way to try and get the economy humming along, we will have entered into an "all news is good news" type of market (as in bad news means the Fed will come in with more assistance and good news - as long as it isn't TOO good - is just that, good news). And with both hedge funds and the public underinvested, there is no telling how far the bulls can take this thing before it ends.

Yes, I see the risks in the market. But after doing this for more than 25 years, I can also tell you that standing in front of a bull train is just plain dumb. Remember being "early" is the same as being "wrong" in this business. So, while you bears out there don't have to like it, as long as Ben Bernanke is planning on not taking any chances with this recovery, you'd best get onboard the bull train and enjoy the ride. To be sure, I have no idea how long the ride will last, but this is one you can't afford to miss - regardless of your global macro point of view.

Turning to this morning... Stocks in Asia followed Wall Street higher overnight. However, comments by St. Louis Fed President Bullard as well as a reversal in Europe may be causing traders to rethink the outlook for additional gains in stocks. Stock futures in the U.s. have given up good gains from the overnight session and are close to breakeven at this hour.

On the Economic front... We will get reports on the Case-Shiller Home Price indices at 9:00 am eastern and then the Conference Board's Consumer Confidence index as well as Richmond Fed index at 10:00 am.

Thought for the day... Challenge yourself to think positive ALL day today!

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

  • Major Foreign Markets:
    • Australia: +0.84%
    • Shanghai: -0.15%
    • Hong Kong: +1.83%
    • Japan: +2.36%
    • France: -0.42%
    • Germany: +0.28%
    • Italy: +0.01%
    • Spain: -0.86%
    • London: -0.24%
  • Crude Oil Futures: -$0.21 to $106.82
  • Gold: +$0.90 to $1686.50
  • Dollar: lower against the yen, higher vs. pound and euro
  • 10-Year Bond Yield: Currently trading at 2.226%
  • Stock Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: +2.04
    • Dow Jones Industrial Average: +14
    • NASDAQ Composite: +0.38

Positions in stocks mentioned: none

For more of Mr. Moenning's thoughts and research, visit StateoftheMarkets.com


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