Juggling Dynamite

The US Fed has aided and abetted today’s ongoing financial crisis through years of relentless intervention under Greenspan and then Bernanke to continually stimulate excessive consumer credit, support asset bubbles and reward reckless bankers with still more cheap credit. Worse, the Fed did not see any of the problems coming, even into the housing peak in 2006 as they insisted that asset bubbles were impossible to predict and that housing bubbles simply couldn’t happen.

That dismal record aside, many today continue to peg their hopes on an omnipotent, all-powerful-Fed that will never let market prices down. Never mind that we have now been through more than 12 years of extreme volatility with two 50% drops and several other 10 to 25% drops in stock and commodity markets. Never mind that most pensions and savers are now financially emaciated. Blind belief in the Fed remains desperately high for many.

Today stimulus junkies were encouraged by dovish comments made by Fed Vice Chair Janet Yellen in a speech last night at a dinner meeting in New York. Through the pleasantries of careful, intellectual speak, Yellen explained that she is worried that the economy is not recovering well, and that it may not do so for a few more years.

I thought some of you may like to hear her speech yourselves. As we listen, we should remember that after several years of extraordinary Fed intervention, interest rates are already about zero and the Fed has already tripled its balance sheet, levering itself now 50 to 1 to backstop bad debts in the banking sector. Not surprising then perhaps, that so many are left banking on just a hope and a prayer for more Fed “magic”. The question period afterwards is also pretty interesting.Here is the direct link.

Good article in the Wall Street Journal on the reasons why today’s insane markets have lost the confidence of rational investors:

“During the last decade the march to democratize the markets has charged forward, with each new innovation or revamp heralded as evening the playing field and giving smaller investors a sense of fairness and trust.

These efforts have yielded two tangible results: lightning-fast execution and slashed trading costs. The floor of the New York Stock Exchange is witness to this shift. The number of floor brokers has shrunk by half, to 1,500, in just five years. Actual trading on the floor is less than 10% of volume.

Taking the place of humans are those coldly efficient and incorruptible machines.

And yet despite these efficiencies, most investors find themselves questioning tried-and-true principles and strategies: value investing, technical analysis, momentum plays and even the simplest maxim, “buy low and sell high.”

Poll after poll shows that investors feel the markets are tilted unfairly against them. What’s worse is that investor skepticism is higher than it was before market “reforms” allegedly improved the system…”

It includes some good stats on HFT, derivatives and volume.  You can read the whole article here.

On this week’s Moyers & Company, Bill talks with the namesake of the Volcker Rule — Paul Volcker, who served two terms as Chairman of the Board of Governors of the Federal Reserve System from 1979-1987, and formerly headed President Obama’s Economic Recovery Advisory Board. Here is the direct link.