Go, Big Ben, It's Your Birthday

Posted: Dec 11, 2013 12:01 AM

Officially, Friday is Ben Bernanke's birthday, but we can understand if he's too pooped to party after last Friday. It was a heck of a week that began with the market edging lower each day in anticipation of a better-than-expected jobs report. That report was better- than- expected and stocks...exploded to the upside. In fact, last Friday everything came out better -than-- expected.

Consumer Confidence: the leap to 82.5 from 75.1 signals a breakout in a pattern that suggests a new normal with respect to confidence levels. It's important to note the changes in confidence over the years. The market high of 2007 wasn't matched by confidence coming back, and now that records are being shattered, confidence is mired in an even deeper funk. Consumers continue to worry about keeping their jobs and wondering when their wages will make a meaningful rebound. They sense we've turned a corner, but we are not breaking any land speed records.

Consumer Credit: surged $18.2 billion in October, while September was revised higher to $16.3 billion. Non-revolving debt continued to power ahead lead by demand for student loans (+$5.2 billion) and new automobiles. But, it was revolving credit, which is the evidence that probably brought a smile to the face of the architect of the virtuous cycle, that turning the corner has finally arrived. Climbing the most in five months, consumers increased credit card use by $4.3 billion. Outstanding credit card debt is a long way from its peak of $1.0 trillion in December 2008, but it is trying to climb off its base of $797.9 billion established in April 2012.

It has been reported that household net worth improved 2.6% in the third quarter to $77.3 trillion, which is $20.0 trillion better than the trough back in 2008. All the money has been regained from the Great Recession, although it's clear it's not in the pockets of those that need it most despite higher taxes and endless redistribution schemes. It has been reported that the top 20% of Americans receive 51% of income, with a medium income of $150,000.

3Q Wealth Rebound:

> $917 billion stock market
> $428 billion house values

These are the first glimmers of hope for the Fed after they've exhausted their bag of tricks. The rewards still aren't anywhere near worth the risks. Consumer spending was lower in October but, so too was savings, which is another goal of the Fed. All the pieces are pointing in the right direction-just in the nick of time. You see, the Fed really has no choice with tapering one way or the other; it just can't keep defying basic tenets of sound monetary policy.

This doesn't mean there won't be a new normal with respect to the Fed's balance sheet. I don't see rates being hiked at the Fed until 2015, which could create a window where that virtuous cycle really impacts the stock market and gets the ball of inflation moving. I get that it sounds dangerous, and it is, but in the beginning it feels great. For all of the talk about giddiness in the market and society- at- large, we haven't seen anything yet.

If last Friday was indeed Mr. Bernanke's birthday- we'll get a more celebratory country in 2014...and that's when we should become more cautious.