"It's obvious the Fed is deeply concerned with what is happening and they also know they need to dance a fine line," said Todd Schoenberger, managing principal The BlackBay Group. "The risk is greater by not doing anything."
"Stocks dropped to their session lows shortly after the Fed said it is open to the possibility of buying more bonds to stimulate the economy, but added that conditions might need to worsen for a consensus to build, according to the minutes of the its latest meeting in June. The market eventually recovered most of their losses in the final half-hour of trading."
So there's the rub-the Fed is open to buying more bonds though things have to get worse. Is it like the police will protect a woman from her stalker after he has her hands around her neck? This was on top of the news that Spain is doubling down on austerity raising the VAT to 21%
There seemed to be a smidgen of good news in that the trade gap narrowed:
"On the economic front, U.S. trade deficit narrowed 3.8 percent to $48.7 billion in May, according to the Commerce Department, in line with expectation. And wholesale inventories for May gained 0.3 percent in May, according to the Commerce Department, also in line with expectations."
So the possibility of QE3 which is believed to be bullish wasn't bullish... Is it because there is it worry that the Fed is worried? Or worry that the Fed won't be worried enough until things get even worse?
"Minutes of their June meeting released Wednesday show that Fed officials signaled their concern that the struggling U.S. economy could worsen if Congress fails to avert tax hikes and across-the-board spending cuts that kick in at the end of the year."
Yeah the old fiscal cliff. I find that I'm sanguine about that worry. In any case there seems to be plenty of time and I'm skeptical about how bad a thing it would be. I never believe tax cuts for the rich are stimulative in the first place. I know the Right desperately wants everyone to believe that the worst thing in the world are taxes for the-the job creators-but I don't buy it.
They did also express worry that the euro crisis could weigh on US growth-that for me is the big worry. I think that is the main worry. Spain's austerity is on an economy with a 25% unemployment rate-ouch.
Treasury prices rallied and yields fell-there's something you don't read every day! I feel that somehow there will be people who don't know I'm being real sarcastic-we read about that every day, that's the joke. Once upon a time the bond market was in a 40 year bear market. Since then it's been in a 30 year bull market and it's beginning to seem like this will never change.
Sumner did make a good point the other day-today we think of a 7% yield in places like Spain and Italy as cataclysmic but just a few years ago there was nothing special about such a yield. In the 70s those would have been very low yields. The reason for this Sumner explains is... This is Scott Sumner so hopefully you know the answer the difference is now we have seriously depressed NGDP.
Of course some market participants are declaring this a buying opportunity:
“The extraordinarily bearish sentiment is an opportunity to get into the market at low prices,” said Doug Cote chief market strategist at ING Investment Management. “Things are much better than the market is pricing in and I think there’s going to be two catalysts for markets to go up—realization that global risk is overstated and fundamentals are far better than what the market’s pricing in.”
It's hard for me to believe it won't be soon.. I always look at Bank of America and say it's got to be soon-I mean at $7.63-today's close-how much worse can it get? Yet dwb the Money Illusion commentator argued that none of the banks are buys. I forget his reasoning but whatever it was it sounded like he may be right. I know Nanute remains bearish.