Suitably Flip

Market Inconsolable Despite Bernanke's Reasonably Dulcet Tones

Cripes.  In the policy statement that accompanied the Fed's Halloween rate cut,  the committee strongly signaled us not to assume more rate cuts were on the way.  While this was suboptimal news for fans of low interest rates, it could be perceived at least as a sign that the Fed was less worried about economic slowdown than some economists had feared.

Upon hearing Chairman Ben Bernanke's testimony today on Capitol Hill, however (in which he indicated he expects the pace of growth to ease further in the months ahead), investors are taking the opportunity to go ahead and freak on out.

The market's already been in a foul mood lately, dogged by increasingly buoyant oil prices and some major turmoil in the financial sector, further stoked this week by Morgan Stanley's subprime writedown announcement and word of more to come from Citigroup.  Add the arguably gloomy Fedspeak to the mix, and the resulting hemorrhaging is significant enough that, were the session to end at current levels, the Nasdaq Composite would see its sharpest 2-day point loss since 2001.

Of course the scary news of a continuing slowdown is neither "scary" nor "news" per se.  We've known we're in a period of slowing growth for several quarters (the phase of the natural business cycle that follows the recovery/high-growth phase).  What economists are hoping for is a successful navigation of this phase by the Fed that enables us to keep economic growth above flatline and lead into the next accelerating growth phase without dipping into recession first.  The balance of economic evidence to date gives us good reason to be optimistic that we will indeed avoid a recession in our return to higher output growth rates.

Indeed, while he doesn't put a numerical probability on it, Bernanke says he believes a recession is unlikely.

Determined as ever to walk on the cloudy side of the street, Senator Chuck Schumer second guessed Bernanke and fired back with his own dire predictions.

"I think we are at a moment of economic crisis," Sen. Charles Schumer, D-N.Y., told Bernanke. "I am not surprised to hear experts such as your predecessor, Alan Greenspan, warn about the threat of a recession. I have begun to worry about it to."

For posterity (and Chuck's edification) Greenspan also views a recession as unlikely.

Update:  Investors snapped out of it somewhat by the end of the Thursday session.  The Nasdaq was still down significantly, but it was well off its lows.  And the S&P 500 and the Dow Industrials managed to claw virtually all the way back to the centerline.

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Market Inconsolable Despite Bernanke's Reasonably Dulcet Tones

Cripes.  In the policy statement that accompanied the Fed's Halloween rate cut,  the committee strongly signaled us not to assume more rate cuts were on the way.  While this was suboptimal news for fans of low interest rates, it could be perceived at least as a sign that the Fed was less worried about economic slowdown than some economists had feared.

Upon hearing Chairman Ben Bernanke's testimony today on Capitol Hill, however (in which he indicated he expects the pace of growth to ease further in the months ahead), investors are taking the opportunity to go ahead and freak on out.

The market's already been in a foul mood lately, dogged by increasingly buoyant oil prices and some major turmoil in the financial sector, further stoked this week by Morgan Stanley's subprime writedown announcement and word of more to come from Citigroup.  Add the arguably gloomy Fedspeak to the mix, and the resulting hemorrhaging is significant enough that, were the session to end at current levels, the Nasdaq Composite would see its sharpest 2-day point loss since 2001.

Of course the scary news of a continuing slowdown is neither "scary" nor "news" per se.  We've known we're in a period of slowing growth for several quarters (the phase of the natural business cycle that follows the recovery/high-growth phase).  What economists are hoping for is a successful navigation of this phase by the Fed that enables us to keep economic growth above flatline and lead into the next accelerating growth phase without dipping into recession first.  The balance of economic evidence to date gives us good reason to be optimistic that we will indeed avoid a recession in our return to higher output growth rates.

Indeed, while he doesn't put a numerical probability on it, Bernanke says he believes a recession is unlikely.

Determined as ever to walk on the cloudy side of the street, Senator Chuck Schumer second guessed Bernanke and fired back with his own dire predictions.

"I think we are at a moment of economic crisis," Sen. Charles Schumer, D-N.Y., told Bernanke. "I am not surprised to hear experts such as your predecessor, Alan Greenspan, warn about the threat of a recession. I have begun to worry about it to."

For posterity (and Chuck's edification) Greenspan also views a recession as unlikely.

Update:  Investors snapped out of it somewhat by the end of the Thursday session.  The Nasdaq was still down significantly, but it was well off its lows.  And the S&P 500 and the Dow Industrials managed to claw virtually all the way back to the centerline.