Thread: Markets Tumble. How Will The Fed React?

What more can they possibly do? Markets are up what... 100% from March 2009 and the Fed is still treating the economy like it's on life support.

Originally Posted by Bullitt

What more can they possibly do? Markets are up what... 100% from March 2009 and the Fed is still treating the economy like it's on life support.

What does the stock market have to do with the economy?

You asking me or Tim?

Bottom Line: The Fed is once again in a familiar place. They try to pull back on policy, and markets tumble. Tightening has repeatedly proved to come too early; one wonders if the Fed would have had to keep doing more if they didn't keep promising to do less. If history is any guide, they will eventually reverse course. But that same history would suggest that they need to see conditions deteriorate further before they act.

Originally Posted by Bullitt

You asking me or Tim?

You, I just don't see the correlation as all of my consumer staples costs are up (Fed says there is no inflation). President says that the long term unemployed need to have more benefits (if the economy is improving, more should be able to find jobs). The market is on a tear, but that only helps the rich, right?

Anyway, I don't think the market being up tells me the economy is good... there is no correlation...

Originally Posted by RealMoneyIssues

You, I just don't see the correlation as all of my consumer staples costs are up (Fed says there is no inflation).

My consumer staples are up too, but there are complex dynamics at work. For one, ETF's have allowed anybody with a brokerage account to purchase commodities leading to more demand. Second, pension funds made the decision in 2009 to diversify into commodities. These decisions are not made in haste. To dump this allocation would take a vote from the board. Third, hedge funds buy futures which drives up demand. None of the three take possession of these goods but again, more demand on the market. Finally, HFT's will go anywhere to benefit from that .01 bid/ask spread.

Originally Posted by RealMoneyIssues

President says that the long term unemployed need to have more benefits (if the economy is improving, more should be able to find jobs). The market is on a tear, but that only helps the rich, right?

He'll do anything for 'likes' or high fives. Isn't he considering raising minimum wage? Everybody knows that doesn't work. Maybe a negative income tax on the 'poor' would work, but I can't see anybody prudently spending a windfall.

As far as the market being up, check out 'the wealth effect'. Look at the emotions of some people when their PIP is higher than someone else's. They feel special, smart, wealthy. When it goes down 2% they're in panic mode.

Originally Posted by RealMoneyIssues

Anyway, I don't think the market being up tells me the economy is good... there is no correlation...

Never said there was any correlation with the market. I'm bearish on the market and am highly critical of our service economy, but while unions call it job destruction, I call innovation and streamlined progress.

Why did Easy Al cut rates in 1987, 2000, and then Ben in 2008? The cuts were made well before a jobs report or any economic numbers came out.

It's all about the stock market and wealth effect baby. Check out Irrational Exuberance by Robert Schiller.