I asked everyone not to panic, but I must admit that I thought there would have been more downside pressure, even though the big clip moves always get markets to where it's going faster. Now, all the major indices are back above their key moving averages, as former critical support points served the same role on the upside. The thing that must be noted is the market celebrated the idea of less accommodation and less Washington DC friction. For Wall Street, it means the ability to focus on numbers, instead of the fireworks and the unknown.
Tea Party Blues
Speaker John Boehner surprised many yesterday, just as stock market trading was getting underway. By allowing a vote on a so-called "clean" debt -ceiling; he avoids a possible ugly public relations disaster that would come to pass, without a deal being in process, taking his Tea Party colleagues down another notch. Since the government shutdown, Speaker Boehner has been adamant about reeling in the rebels.
Maybe, even breaking their spirit once and for all...
I think the announcement was also a victory for Treasury Secretary, Jack Lew, whose warnings about hitting the debt-ceiling last week helped to drive the market lower. In fact, I even said on the air that Lew was "fear mongering," but his office contacted me immediately; they didn't read me the riot act, but hinted that I should be less inflammatory. And, they reiterated that the debt-ceiling was in jeopardy of being hit. They didn't like my use of the word "gimmicks" to explain how the nation could hit the debt-ceiling borrowing money every day and thereafter, and still not go through the debt-ceiling.
Of course gimmickry isn't just the province of the White House, as the Speaker removed any chance of anything else being topic number one this midterm election year, besides Obamacare. For now, there are a few chips and cracks in the Tea Party, but the new healthcare law looks like a mountain of shattered promises.
Wall Street Euphoria
Chairwoman Janet Yellen, the new top honcho at the Federal Reserve, is staying the course which isn't exactly man-bites-dog kind of stuff. The Street needed to hear this, even through a convoluted speaking sentence structure and cadence, which makes me think back to the excruciating days of trying to understand Alan Greenspan. She's not a salesperson; by the same token, she's not one to rock the boat either, and in the process she has managed to close Wall Street and Washington.
It's appropriate, the phrase "stay the course," which first showed up in print in 1885, referring to the ability of a horse to endure and reach, and get to the finish line. Yellen is asking Americans to gamble on an economy that's still a muddy track wrought with doubt and disappointments. In return, she's vowing a "continuity" of policy that means the economy would have to take a dramatic U-turn in this most tepid of recoveries, before the Federal Reserve would shift course to add more accommodation.
By 1916,"stay the course" took on political overtones imploring the masses not to give up hope, even in the face of long odds and casting aspersions on those that didn't exhibit faith. The new Federal Reserve chairwoman isn't determined to wind-down quantitative easing, but makes it clear that monetary policy will still be accommodative. She worked hard to make the distinction between tapering and raising rates, with the latter being a real change in accommodation. On this score, I agree there is a difference, and tapering is not the same as raising rates.
On that score, the chairwoman promises to "stay the course" and not hike rates forever: "highly accommodative policy will remain appropriate for a considerable time after asset purchases end."
There is cause for concern with chairwoman Yellen that has to do with her observations, skills, and her willingness to speak out, or be preemptive. One Fed watcher argues she was in charge of the San Francisco Federal Reserve Bank when the three largest real estate bubbles became obvious, and yet never sounded the alarm about California, Nevada, or the Arizona markets. If she couldn't see the forest or forest fire, while sitting in the middle of it, how will her visibility be sitting in that giant, cold mausoleum?
Then there was the admission she was "surprised that the pace of job creation was running under what I anticipated" regarding recent weaknesses in employment growth. But the best line of them all, and one with which Fed-skeptics are familiar, "we have to be very careful in jumping to conclusions about what those reports mean." Oh, so you don't trust them either? (LOL!) By the way, when Rep. Maxine Waters lobbed that underhanded softball to pitch the merits of quantitative easing; chairwoman Yellen did a tap dance from back in the day:
It's designed to "spur spending"
It's designed to trigger "rapid economic growth"
It created "meaningful pickup" in housing market and "house prices"
Come on, it did none of those things. There has been no spur to the economy, maybe a little giddy up and slow trot as there has been nothing rapid and nothing on Main Street about the would-be recovery. First time buyers aren't stepping up the plate; it's Wall Street and Chinese investors. Higher home values haven't triggered that elusive 'wealth effect' either.
I do want to pass on a word of advice to chairwoman Yellen, especially when she says that asset purchases are not on a preset course...oh, yes they are, or all hell will break loose, and yesterday's meet-and-greet will go from manic to depressive in a flash.
Chairwoman Yellen, you have no choice except to "stay the course" now.