Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Investing lessons from the 1987 Stock Market Crash From Who Beat it - 20th Oct 19
Trade Wars: Facts And Fallacies - 20th Oct 19
The Gold Stocks Correction and What Lays Ahead - 19th Oct 19
Gold during Global Monetary Ease - 19th Oct 19
US Treasury Bonds Pause Near Resistance Before The Next Rally - 18th Oct 19
The Biggest Housing Boom in US History Has Just Begun - 18th Oct 19
British Pound Brexit Chaos GBP Trend Forecast - 18th Oct 19
Stocks Don’t Care About Trump Impeachment - 17th Oct 19
Currencies Show A Shift to Safety And Maturity – What Does It Mean? - 17th Oct 19
Stock Market Future Projected Cycles - 17th Oct 19
Weekly SPX & Gold Price Cycle Report - 17th Oct 19
What Makes United Markets Capital Different From Other Online Brokers? - 17th Oct 19
Stock Market Dow Long-term Trend Analysis - 16th Oct 19
This Is Not a Money Printing Press - 16th Oct 19
Online Casino Operator LeoVegas is Optimistic about the Future - 16th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

The Time Has Come Mr. Bernanke for More Stimulus!

Stock-Markets / Economic Stimulus Jun 02, 2012 - 02:26 PM GMT

By: Sy_Harding

Stock-Markets

Best Financial Markets Analysis ArticleFor several months Fed Chairman Ben Bernanke has been assuring Congress and by extension, investors, that the Fed stands ready with ammunition to re-stimulate the economy “if it becomes necessary.”

It has become necessary.


In each of the last two summers the Fed waited until the economic recovery had stumbled near the point of sliding into recession, and the stock market correction was close to crossing the 20% line into a bear market, before coming to the rescue (with QE2 in 2010 and ‘Operation Twist’ last summer). And it lucked out. Both times the economy picked up for another six months before rolling over again. Both times the stock market recovered and resumed the bull market that has been in place since early 2009.

But the global problems of the last two summers were picnics in the park compared to what is going on this year. Sure, both times the eurozone debt crisis had reared its head again, and there were worries about how much it would cost to bail Greece out, and how much it would cost to put a ‘ring fence’ around the rest of the eurozone.

However, this year we are witnessing a train-wreck of historic proportions taking place in the eurozone, Greece expected to fall off the tracks and tumble clear out of the eurozone, with who knows what results to the European financial system, with Spain’s train following and now potentially piling into the wreckage, while economically the 17-nation eurozone is already clearly in a worsening recession.

In the last two summers, the worries from Asia were merely that China and India faced rising inflation, and in their efforts to bring it under control might slow their booming economic growth, which could have a marginal effect on economies elsewhere.

This year, Asia’s problems are much worse. The slowdown in China, the world’s second largest economy continues to worsen. Its manufacturing output has declined for seven straight months, with its HSBC PMI now running under 50, indicating recessionary contraction. India reported this week that its economic growth slid to its lowest level in nine years.

In South America, Brazil, the world’s 7th largest economy, cut its official interest rates to a record low this week in an increasingly desperate effort to re-stimulate its slowing economy.

And then there are stock markets, which tend to lead the economy by six to nine months. They sure don’t seem to like what they’re seeing down the road.

While in the U.S. the S&P 500 has declined less than 10% since mid-March, global markets outside of the U.S. have been in serious corrections. The stock markets of the world’s next 11 largest economies have plunged an average of 18.4% and show few signs of bottoming. Several have exceeded the 20% decline that defines entry into a bear market.

Meanwhile, U.S. economic reports have been grim for several months, and the additional dismal reports this week do not encourage the thought that the U.S. recovery can get back on track on its own.

The week’s reports included economic growth (GDP) for the first quarter being revised down to just 1.9%, from the previously reported 2.2%. Consumer Confidence fell in May in its biggest monthly decline in 8 months (versus forecasts that it would rise). The Pending Home Sales Index (contracts for future home sales) fell 5.5% in April, its first decline in 4 months. The closely watched Chicago PMI, which measures business conditions in the Fed’s Chicago region, fell to 52.7 in May from 56.2 in April. Any number above 50 indicates that businesses are still expanding, but it was the third straight monthly decline, clearly headed in the wrong direction. And the national ISM Mfg Index dropped to 53.5 in May from 54.8 in April.

On Friday, the Labor Department released a bomb of a jobs report. Only 69,000 new jobs were created in May, versus already pessimistic forecasts of 150,000. And perhaps worse, as it provides further evidence that the economy has been weaker even than feared, the previous report for April that 115,000 jobs had been created was revised down to only 77,000.

For the Fed, as the U.S. economic recovery stumbles again this summer, that’s a much uglier backdrop than in the slowdowns of the last two summers.

It makes it much less likely the Fed will luck out if it waits until the last minute to come to the rescue this time. In fact there’s no assurance that the Fed even has firepower that will work this time. But at least an effort might pick up confidence enough to make some difference.

Observers believe that stimulus needed to reinvigorate China’s economy is on hold until the Chinese government leadership changes in October. But, analysts expect the European Central Bank to step in with renewed stimulus efforts next week.

The Fed’s next FOMC meeting is June 20. Expectations have been for it to take no action. But this week’s economic reports and further plunges in global stock markets should change its mind. It’s time for the Fed to act.

In the interest of full disclosure, I don’t really mind what’s going on. My indicators came off their October buy signal in mid-February, and I and my subscribers took our profits, and we currently are 40% in ‘inverse’ etf’s (SH and RWM), and 60% in cash. But, it’s not as much fun to make profits from the downside when many are experiencing losses again.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2012 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

gAnton
02 Jun 12, 20:42
The Bankers Best Friend

Well, FED stimulus seemed to work before–why might it not work this time?

Well, first of all, “before” the EU and EURO currency were not in the advanced stage of going to hell in a handbasket.

Secondly, “before” the China economy was not in decline and on the verge of a USA 2008 style real estate bust.

Thirdly, every past FED action has had many negative effects on the economy, such as weakening of the dollar, inflation, much higher soverign debt, etc.. In other words, Dr. Bernanke’s patient (the economy) is basically in much worse shape than ever before because of Bernanke’s past treatments.

When Bernanke uses the word “recovery”, I assume he means an economy with the economic statistics similar to those of the economy before the 2008 bust. But that wasn’t a healthy economy–it was an economy on the verge of a big bust.

It should be clear by now to everyone that all of the

results of Bernanke’s past efforts were at best cosmetic and temporary, and at worst illusionary or catastrophic.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules