Edward Harrison, a financial commentator at BBC World News, CNBC and elsewhere, writes at Yves Smith's excellent Naked Capitalism site about the recent market roilage and its relationship to the Fed's slightly less recent pronouncements.
Bottom line — he doesn't want to say it doesn't look good (for fear of making it worse), but to him, it doesn't look good.
First, for those who don't know, the Fed did something recently, but not a lot. Paul Krugman summarizes:
OK, the Fed moved. It was a bit stronger than expected — and BB [Fed chair Ben Bernanke] and company stood up to the GOP. But seriously, they’re trying to use a water pistol to stop a charging rhino.Now Harrison, who takes issue with the "stood up to the GOP" part of Krugman's analysis (my emphases):
• The global economy hit stall speed earlier this year as Europe and the US became susceptible to a double dip at the same time.There's more in the post — he writes about Europe as well and these are just a few of his points.
• Double dip will likely lead to such severe turbulence politically and economically that cohesion could rip apart in a way that creates depression instead of policy support and muddle through. ...
• The Fed statement yesterday, while initially billed as the post-QE3 meeting statement should now be seen as the Fed reload to find its run-out-of-ammo [my hyphens] meeting. I should stress as I did yesterday that “it’s not that monetary stimulus is completely ineffective. It’s that you must really jam it on ...
• The Fed is not going to jam it on. “the Fed is already feeling political heat from its previous policy actions, so it will allow the economy to slip before it embarks on the next round of asset purchases. Therefore, if and when the next recession hits, debt deflation will take hold. The calls for stimulus will be deafening. And because the Fed will have resisted more aggressive prior action, the Fed will then be forced to be extremely aggressive in its policy response. That is when expanding the balance sheet will be a go and the Fed won’t just buy Treasuries, but a lot of other assets too.” [Roubini: No QE3 announcement at Jackson Hole but QE3 will happen]
My translation: Harrison thinks that the Fed feels the bite of the GOP's attack ("Don't you dare help the economy. That helps Obama and it's therefore political." Shameful, yes?)
Therefore Bernanke will wait until help is desperately needed before acting; then he will act with an evident need in front of him, as protective cover as it were. But that will be too late.
As I noted via Twitter, the Fed may well be trying to parse the partisan banana right down the middle. Harrison seems to agree. If so, the timid Bernanke has decided wait for a problem before gathering the posse.
That problem has a name — double dip. And thus the markets' agitation and all that fear.
However, I've said many times that the Big Boys want to hold the Dow above the magic 10,000; and I believe that Dow 11,000 is the buffer they need to feel comfortable. So don't bet on the downside yet; the Bigs have a lot of their own money at stake. Dow between 10,000 and 11,000 is time to be watchful but not frightened, in my opinion.
GP
