"Stocks closed higher in thin trading Friday, with all three major indexes log their best weekly gains this year, amid optimism that euro zone leaders would move closer to tackle the region's ongoing debt crisis, including a recapitalization of Spanish banks over the weekend."
“Bipolar markets here," said Alan Valdes, director of floor operations at DME Securities. "Yesterday, the market did not like what it heard from Bernanke. And today, we’re getting rumors out of Europe that Spain may get a bailout, which is lifting the market and the President spoke today begging for some action out of Congress."
There were enoguh postive things this weak to at least short term change the sentiment. Let's see if this continues. There was some hope on Wednesday that more monetary easing was in the works after Janet Yellen's comments. However, Bernanke managed to douse that optimism a little on Thursday.
He seems to be denying the Sumner Critique as he actually said this word for word: monetary policy is not a panacea. He's insisted that if we fall of the "fiscal cliff" he wont be able to undo the damage. Still Morgan Warstler may be right in that Bernanke's showing his supply side bias. Warstler is pretty smug:
" we KNOW what Ben wants and instead of saying it over and over, we are continuing to just pretend shouting ans shaming him will work. He wants Tax Cuts Now and Credible Spending Cuts for the future."
Morgan never sells his own conservatives on all this but he gets me convinced. I already suspect that NGDPT is really just backdoor austerity.
So it may be that Bernanke is most concerned about the Bush tax cuts. For me I say we finally have a hostage we can shoot. Let them expire if the GOP wont budge. Unlearning Econ actually has a post that argues the taxes expiring wont be the disaster many think it will be. I tend to agree if even just inferentially. I mean the pre Bush tax cuts world was much better than the post Bush tax cuts world so we already have correlation.
China also had a surprise move that moved the markets. To be sure this could be bad news-as it implies the Chinese economy is slowing faster than was realized. On the plus side it could mean that the People's Bank of China is satisfied that inflation is low enough for more easing. If so if only our Fed was so proactive. In any case the market loved the move.
The best tangible solid development for hope was in Europe where Germany may finally be loosing up a little. It figured out a way to save face but allow Spain's banks to get direct help from the ECB.
“The market is showing irrational fear about current events in Europe and China,” said Doug Cote, chief market strategist for ING Investment Management. “Investors have been pricing in a worst-case scenario and once they realize we’re not there, the biggest risk in this market right now is for investors not to participate in the melt-up that we think is highly likely.”
"President Obama put pressure on European leaders to act quickly to solve the region's ongoing sovereign debt crisis, suggesting solutions such as injecting capital into weak banks. Obama warned that Greece's hardships will continue to grow if the debt-ridden nation exists the euro zone. "