Stocks would be 50% lower without BUBBLE ben bernanke!!

Discussion in 'Wall St. News' started by S2007S, Jul 12, 2012.

  1. S2007S


    Someone must have been reading my posts on here, I have said probably a few hundred times that without BUBBLE ben bernanke and friends the market would be 50% lower, of course no one believes this, they think all these great market gains are all do to a stronger economy, what they fail to understand is that only reason for the 100% gains in the last 5 years are only because of what BUBBLE ben bernanke has done, just print trillions and trillions and trillions of dollars in a worthless economy. How else can you push stock indexes higher...well now that the entire global market is used to these stimulus plans and free trillions, what happens when that stops, or can it stop???

    Market Savior? Stocks Might Be 50% Lower Without Fed | July 12, 2012 | 03:15 PM EDT

    A report from the Federal Reserve Bank of New York suggests that the bulk of equity returns for more than a decade are due to actions by the US central bank.

    Theoretically, the S&P 500 [ .SPX 1334.76 -6.69 (-0.50%) ] would be more than 50 percent lower—at the 600 level—if the bullish price action preceding Fed announcements was excluded, the study showed.

    Posted on the New York Fed’s web site Wednesday, the study sought out to explain why equities receive such a high premium over less risky assets such as bonds.

    What they found was that the Federal Reserve has had an outsized impact on equities relative to other asset classes.

    For example, the market has a tendency to rise in the 24-hour period before the release of the Fed’s statement on interest rates and the economy, presumably on expectations Chairman Ben Bernanke and his predecessor, Alan Greenspan, would discuss or implement a stimulus measure to lift asset prices.

    The FOMC has released eight announcements a year at 2:15 ET since 1994. The study took the gains in the S&P 500 from 2 pm the day before the announcement to 2 pm the day of the statement and subtracted that market move from the S&P 500’s total return over that time span.

    Without the gains in anticipation of a positive Fed action, the S&P 500 would stand at just 600 today, rather than above 1300.

    “I would conclude that correctly analyzing Fed moves is much more important than stock picking,” said Brian Kelly of Shelter Harbor Capital. “If you want to generate alpha, you should trade the stock market 24 hours before an FOMC meeting. Simply follow the trend for that 24 hours and you will outperform.”

    The chart shows the effect to be significantly pronounced in the aftermath of the tech bubble when Greenspan re-inflated stock and housing prices by slashing rates. It widens even further in the period since the financial crisis of 2008 as the market became beholden to the Fed’s use of its balance sheet to add liquidity to the market.

    “Blame Greenspan for this S&P 500 effect… it’s his free put,” said Robert Savage, chief executive of research site and formerly managing director of FX Macro Sales at Goldman Sachs. “Since 1994, the battle of central banks hasn't been to fight inflation, but rather to smooth out the business cycle and credit. The convergence of global rates and inflation left the decisions of the FOMC as the key variable for S&P 500.”

    The market is down six days in a row currently on the concern that the Federal Reserve will not embark on its third round of so-called quantitative easing anytime soon. Minutes from the central bank’s last meeting, released Wednesday, reinforced the concern that the economy is muddling along enough to keep the Fed on the sidelines.

    To be sure, one cannot look at these Fed actions in a vacuum and conclude the S&P 500 would plummet 50 percent if the Fed were to undue all of its supportive measures of the last two decades. But that doesn’t mean this exercise can’t be instructive.

    For example, proponents of index funds will often argue their case by using data that shows a significant drop in S&P 500’s yearly returns if you took out the five best days of that particular year. The point: you need to always be fully invested so you don’t miss one of those days, which account for the majority of the market’s annual return.

    The Fed’s next announcement is due August 1st and it would seem by this study, one would want to make sure they are invested in the market by 2pm on July 31st,“It's a QE world,” said Josh Brown, an investment advisor and popular author of The Reformed Broker blog. “We're all just trading in it.”
  2. And if yer aunt had balls she'd be yer uncle...
  3. Sarcasm aside, 5-10 years ago trash talking the actions of the Fed and their incessant "need" to inflate asset prices was considered "tin hat" material. The fawning over Greenspan was ridiculous, but until the shit show of 2008, all the perma-bull monkey's really believed the guy walked on water. Anyone remember the streak of absolutely NO downside volatility between was record setting.

    The cognotive dissonance created with these asset pumping policies are very hard to break...Even when we are on the umpteenth iteration of "QE", the rally monkey's will front run the bullshit and leak rumor after rumor to garner that transitory edge.

    It's well past time that the equity markets be allowed to stand on their own and the "adults" who have some stake in the market allowed to make their own buy and sell decisions based on reality, not some permanent counterfeiting bid underneath the market.

  4. Well past time? I recall Greenspan getting called on his bullshit cheerleader policies - by the people who cared, if not CNBC - as far back as the late 1990s.

    He revealed his true colors as an obsequious political shill in his financial-innovation-worship metamorphosis after the 1996 "irrational exuberance" backlash, realizing with certainty and finality on which side his bread was buttered, and no one gave a fuck that the guy was a nonsense-talking money-printing organ grinder's monkey (the grinder being Wall St) as long as markets kept going up.

    And before Greenspan there was Arthur Burns and Nixon and LBJ and post-Nam and all the shit that went down in the 60s and 70s... and massive S&L bailouts and the rise of shadow banking in the 80s... and the great cave-in to the unions in the 50s... and FDR fucking around with the money supply and precious metals in the 30s... and plenty of shit before that...

    It's a dirty game and a manipulated playing field, but it's been that way forever -- because that's how the powers that be want it to roll. Don't hold your breath if you're expecting anything to change.
  5. Bob111


    i'm sick of this nonsense...2-3 down days-and they all start talking about more stimulus..fucking pathetic..
  6. The government and central bank always needs to provide stimulus during economic downturns, otherwise you have a great depression. During recessions consumers pull back, businesses then start laying off, and then consumers pull back more, creating a negatively self-perpetuating cycle. The central bank and government attempts to break this cycle with monetary and fiscal policy. What is so hard to understand about this role?
  7. Actually, what you are describing is the government's role in a deleveraging, which is different than a recession / ordinary business cycle downturn.

    Ironically, the necessity of government to act in a deleveraging, is ultimately created by the government's refusal to stay its hand in normal business cycle downturns, thus allowing excess debt and leverage to build up dangerously over time rather than self clear.

    The process is analogous to zealous fire suppression, allowing dead wood and underbrush to build up until a single match or lightning strike comes along and takes out the whole forest. If the natural process of smaller, less serious forest fires had been allowed to play out over time, the forest would have more or less cleansed its own detritus and stayed healthy.

    Bitching about the reality of it won't change anything, and those who lose money on the short side because they don't understand the process, deserve to lose that money, because their template of understanding for how markets work is incomplete and we have to trade the markets that are, not the markets that we wish existed.

    If you want to understand better, read this:
  8. would that be a good thing?
  9. zdreg


    "The central bank and government attempts to break this cycle with monetary and fiscal policy."
    it cannot be done.

    it is natural for economies to have up and down cycles. the down cycles are there to rid the economy of excesses which came about in the previous up cycle. central banks cannot change this reality. they can postpone the down cycle by creating ever larger bubbles. at some point the currencv, because of money printing, is debased out of existence or the bubble created by central bank busts and the damage is much greater than if they had done nothing.
  10. Bob111


    in 'ideal' capitalist country the role of the government should be very simple -to protect individual rights. that it. not manipulate markets with 'stimulus'.
    i will be perfectly fine without it. in 2007-09 and now.
    fuckers like BAC would be history by now. good,stable,friendly
    LOCAL banks would survive.
    #10     Jul 13, 2012