Last week the market did shake a bit due to talk of eventual change in the handling of the FED’s balancesheet. Anyway…. the market did bounce back since super Ben before his testimony reassured the market that he did not see any imminent change to his policy.
A few things drew my attention: Bernanke did not say that he would increase QE *maybe he keeps this for later…) and did say that a rough handling of the “Sequestered” of USD 85 billions could impact economic growth “importantly”. I guess that somehow Bernanke is kind of afraid to show that the ” FED’s Emperor” has no cloth. His recent QE track record policy of USD 85 Billions a month, does not do anything vs an eventual Sequestered of USD 85 billions cut and his “tax transfer policy” of roughly USD 85 Billions to his Banksters’s friend as Bloomberg kindly informed us last week (see here http://www.bloomberg.com/news/2013-02-20/why-should-taxpayers-give-big-banks-83-billion-a-year-.html )
The Bernanke’s “Asset Bubble Policy” is kind of on weak ground when looking at this 85 number. Corporate profit margin in the US are at a all time high (roughly the size of the US budget deficit) relative to GDP and it will be hard to further expand. A sizable part of them is Tax subsidies to the TBTF Banksters (he should put 0% interest on excess reserves). Social economic conditions have not improved for the middle class which proves that the mechanism transfer for the dual Fed’s policy mandate is not working . Asset Bubble policies have always been fuelled by credit expansion which… is not expanding so… Bernanke must do the job all by himself using the FED’s balancesheet. The FED is somehow the stand alone game changer with the deepest pocket but…. I do have doubts about the capabilities of the FED to withstand alone the market pressure … if it comes and when it comes.
If you wish to join the great media “bond equity rotation” game…. be my guest but…. in a musical chair game…. the band at some time stop playing the tunes as we like to hear it.