Looks like he's setting the stage: Bernanke: Danger of downturn appears to have faded http://biz.yahoo.com/ap/080609/bernanke.html
The problem with economics: its easy to spin everything positive because theres a sunny inflection to any metric or stat, no matter how gloomy the broader picture may be. This is what perma bears (and bulls) do: interpret every stat - no matter the outcome - towards their predetermined bias. You see it here all the time. A strong dollar is great for Foreign Investment! A weak dollar is great for securities! The sun never sets on our glowing economy, using this logic. Yet, sometimes it does. Strange?! I think your analysis is too simplistic and more metrics need consideration to round out the broader picture. And thats what economics is about - the bigger picture. A strong dollar encourages FDI. But it also hurts borrowers (higher rates, that is). American borrowers are extremely leveraged and not in good fiscal health. Consumption is 70% of the overall economy. Housing/Real Estate Development is a huge chunk of the economy. Higher rates will bottom out sales and demand. Unsold inventories are already at 11 months, nearly the largest on record. The overall economy is doing poorly. The last NFP was down another 50K jobs. Inflation is running at near double digits, using pre-90's CPI. That puts Real GDP in negative territory. Real Incomes are actually on the decline, and have been for quite some time, if pre-90's CPI is used. Discretionary income, as a proxy, is also sharply declining from energy-related inflation. This does not sound so rosey to me. The Financials are still underwater. Yet the worst may be over (for Banks) if Bernacke is signaling a raise. . Granted, continued easy credit will wreak havoc on commodities and inflation, discretionary spending, etc. But what choice is there? I agree, raise rates. Should have been done a long time ago. But that doesn't mean we're going to see a immediate recovery. Far from it. It means were going to see a major correction in prices across the board: Real Estate, Housing, Consumer Credit, and the Market. They're all going down. Defaults, bankruptcies and a possible long, slow bear market. Maybe a crash. Commodities should correct as well, which is the lone star in this story. Low oil is bullish for the economy. Most RE/CDO/Mortgaged-backed fixed income funds will not survive. The whole game was to sell a dead horse. Bernacke played his part, put lipstick on a pig (ie the US economy) and buyers took radioactive paper off banks for pennies on the dollar. Now, its their turn to play bagholder. No fun, there. Fundamentally, higher rates are never bullish for any fiat economy, ever. Rates determine aggregate demand. Low rates, high demand. Higher rates, low demand. Very basic stuff but needs to be said. You're right about stagflation. But higher rates will not bring more growth. It will correct the CPI and everything else to where it should have been had there been a few years of marginal growth, at 2000-level prices. If this were China or India, I wouldn't be so Bearish. But this is America, the economic engine of the world. All these other little feeder economies feed us. We don't feed them. People say, look at the Asian growth! Its phenomenal. They'll buy us out of recession!! No they won't. Foreign consumers don't have any money to buy US products. They're still relatively poor. The only economy that can help America is Europe. And with the Euro at 1.5 to 1 USD, Real Estate prices crashing, where are the Europeans??? You'd think with their strong Euro, grandfathered wealth and garage sale prices on US Real Estate they'd be buying up securities and property like crazy. That support is nowhere to be found. Take a look at the market. Europe has its own growth problems and people are hurting from the effects of the same Real Estate and Credit bubble that happened here. It was a global money bubble. A global property bubble. A global commodity bubble. And now, a global recession. Good luck.
The problem with economics is that it is useless with regard to predicting the direction stock market.
No, its not. Fundamentals are no good at timing. Technicals determine timing. Fundamentals determine direction. All the inflation hawks were calling for retarded commodity and oil prices years ago. We all saw m3 and knew the consequences. And here we are, at 135 Oil. Gold should and will be going higher. Its suppressed by the Central Banks to keep wage-inflation low. Fundamental players made a boat load of cash in Real Estate and Equities after 911. Why? Cause they knew super low rates stimulate big - but unsustainable - economic growth.
The danger to economy has subsided due to massive rate cuts that are now working, but our impatient traders doom and gloom has come back like an old disease. They are back to their chart destructive ways..