The Core Inflation Lobby
There is a dividing line between supporters of the so-called Core rate of inflation and those economists I taken to referring as “reality based.” Perhaps the distinction is nothing more than people merely “talking their books.” One’s views on inflation are likely to be affected by your particular portfolio holdings (or those of your firm and/or its clients). Long only equity funds have been begging vociferously for the Fed to stop tightening; Market Neutral funds (long/short as well as Arb or Option funds) don’t seem to care much either way.
Then there’s fixed income players. PIMco's Bill Gross, the world’s largest Bond portfolio manager, is the 2nd person to suggest that rate cuts - not hikes, but cuts - are likely to occur in 2006. Given the vulnerability of Fixed Income to even more rate hikes, one can understand his perspective. Incidentally, we were actually the first to suggest 2006 rate cuts - back in June of this year in the WSJ.
Then, there are the political economists. They end up seeing the Economy through the prism of their political views. Instead of talking their positions, they talk the books of those they support politically.
Which brings us to the Bernanke announcement. There is no
doubt he is eminently qualified; You know a nominee is a "slamdunk"
to get through the Senate Confirmation Process when political cartoonists mock
the President for nominating someone who's too qualified. The only critique against Bernanke is that he is not Hawkish enough against
And that belief is the most likely explanation for Monday’s moon-shot. Was yesterday’s celebratory stock launch a rational assessment of the nominee as qualified? Or was it more likely that the market likes the idea of less vigilance against inflation? As noted above, those who have been “long and wrong” have made the basis of their vigorous Fed lobbying the transparently false claim there is no inflation ex-Energy, despite the fact that nearly everything we purchase has gone higher (even Broadway!). These souls have been begging the Fed to end their misery by declaring “Mission Accomplished” on inflation; With the war now won, they are hoping the armistice will consist of “no more rate hikes.” As our favorite commentator observed, this also “bespeaks the market’s relentless demand for instant gratification.”
The Majority doesn’t always rule.
As the table at top shows, all the major indices were up at least 1.6 and as much as 2.2%. The fly in the ointment has been the modest volume - its slipped 4 straight days. On Monday, we traded 213million less shares than Friday. That suggests modest conviction.
This “air pocket” is hardly what the Bulls need to support a lasting move higher.
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"Moon shot" indeed. It smelled to me like someone was just plain determined to make it LOOK like the market strongly endorsed the Bush nomination and was damned determine to make sure it didn't LOOK like the market was disappointed or indifferent.
As to whether Bernanke is inflation dovish, well I don't know myself, but consider: http://delong.typepad.com/sdj/2005/10/its_another_gam.html and his subsequent posts.
Posted by: guambat stew | Oct 25, 2005 9:11:40 PM
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