Daily Analysis...Here comes Mr.Bernanke (AGAIN)

As we have noticed from last month testimony Mr.Bernanke keep twisting his words regarding tapering and easy money and it’s high time there should be some definite words and action.

Federal Reserve Chairman Ben S. Bernanke heads to Capitol Hill for the semi-annual testimony on economy and monetary policy before Congress on Wednesday (House) and Thursday (Senate).  This testimony will also be the last time Bernanke testifies in front of Congress before his term ends in 2014. Markets have been rendered directionless while market participants have been thoroughly confused lately by complete contradictory statements coming from various Fed members and particularly from Bernanke himself. Right since the start of 2013, Bernanke had himself said that winding down QE may happen as soon as the middle of next year, but “Tapering” off may begin much earlier this year itself. But then, suddenly last week, Bernanke flipped and started saying the Fed will not taper the $85 billion a month bond purchasing plan until the U.S. economy is stronger, which also, he does not see in the 

“Foreseeable Future.”

Though all are now focused on the testimony, no one in the markets knows for sure what Bernanke will say or which Bernanke will speak, his comments (either ways) – a big bunch of lies, contradictions and manipulative statements, are sure to again move the markets in a big way. Last week’s move confirms market timing and manipulation which almost everyone suspected when Bernanke said the Fed’s monetary policy would remain accommodative for the near term – or the Foreseeable Future. Is there really any other interpretation for his clear and obvious verbal intervention in the gold and silvermarkets as well as the bond and stock markets? When Bernanke is Dr. Jekyll, his own beliefs on the economy and monetary policy come to the forefront, he gets dovish and speaks about the still weak economy needing continued accommodative monetary policy. The U.S. unemployment rate, at 7.6%, hasn’t been below 7% since November 2008. But when Bernanke turns into Mr. Hyde and represents the entire FOMC, he is more hawkish and speaks about the end of the bond purchase program.

The Fed has been buying $40 billion of mortgage bonds and $45 billion of Treasuries each month to inject cash into the economy. Almost half of the Fed’s Board wants QE ended latest by the end of 2013. Yet Bernanke felt the need to speak – especially after the market closed - about how he will keep the money printing going on. Bernanke now feels that a highly accommodative monetary policy for the foreseeable future is what’s needed for the economy and so be it. Bernanke also added that there would not be an automatic rise in interest rates either when the U.S. unemployment rate hits the Fed’s target of 6.5%. Stocks must go higher! The markets sure saw a new record high in the S&P 500 immediately.  Do you remember the time in 2007 where we had a market top, a brief collapse and then a final burst higher to a new high? Within a few months however, the markets had begun to descend into a free-fall which shook and gave jitters to the entire financial world. Its more overbought than was while going into the 2007 peak at the top of the housing bubble! Imagine that along with the FACT that there were some tools available to help loosen the crisis then – none of which is now available… This is a fact and the Fed has successfully created an even bigger bubble than the one in 2007. Bernanke, it seems, will do everything he can to keep stock prices higher. The tapering will likely not begin until 2014 and rates will remain low for a long time after that.

Gold and Silver crashed further after Bernanke had said June 19 that bond buying could slow if the economy improves. Come July 10 and Bernanke said that the U.S. still needs stimulative monetary policy, the same day minutes of a June meeting showed division among policy makers on when to slow and end asset purchases. After helping smash Gold and Silver on Taper Talk, Bernanke now conveniently denies QE Taper possibility in the “Foreseeable Future.” Why? Are the so-called Big Banks now long in gold and silver? Anyways the entire show of U.S. Economic recovery is based only on numbers derived from accounting gimmicks and flawed theories by Bernanke. How else would one justify improvised employment numbers in a slowing economy proven by the collapse in corporate earnings and also the U.S. GDP? U.S. Stock Markets have never been this overextended at any point in the last 20 years and are undoubtedly in a bubble.

As for the US dollar, currency market traders and investors were surprised last month by gains in the dollar when they perceived the Fed chairman as more hawkish than anticipated. The Dollar Index rose on June 19 by the most since May as Bernanke said the central bank may start dialing back its asset-purchase program, known as quantitative easing, this year and end it entirely in mid-2014 if the economy achieves sustainable growth.

Even with the US dollar rising the most this year of 10 developed-market currencies, it dropped on July 11 by the biggest amount since October 2011 after Bernanke said the U.S. economy still requires stimulus. Futures bets on the greenback rallying versus the Yen, Euro, Canadian Dollar and British Pound had moved in lockstep two weeks in a row as of July 9, the first time that’s happened since 2009, according to CFTC data. Emerging-market currencies from South Africa’s rand to Russia’s ruble rallied after Bernanke signaled that stimulus to the world’s largest economy won’t be dropped soon.

U.S. retail sales rose less than expected in June, the latest sign of a slowdown in economic growth that offers a cautionary note to the Federal Reserve as it mulls scaling back its $85 billion monthly bond purchases. The disappointment was tempered by accelerating growth in New YorkState’s manufacturing sector in July, according to a report from the New York Federal Reserve that provides one of the earliest monthly guideposts to U.S. factory conditions. Investors are awaiting greater stability in gold prices before returning to an asset that has slumped this year, even though concerns over the economic recovery are burnishing the metal’s longer-term appeal. The dollar rose against the yen on Monday as traders said a sell-off last week was overdone because the Fed is still likely to be the first among major central banks to move away from ultra-loose monetary policy.

The European banking and sovereign crisis is back with a vengeance while economic numbers out of China indicate a sharp economic slowdown. There was a minor sense of relief attached to the Chinese GDP result today, despite the result being in line with expectations. Some market participants had been bracing for a potentially worse result than the 7.5% growth rate, particularly given the negative rumblings over Chinese growth in recent times. Gold prices are into the longest run (since Feb. 11) below their 200-day moving average since the 12-year bull market began in 2001 Gold is way oversold and is finding support from developments in the Eurozone, where the “debt crisis is still very much an omnipresent factor and could flare up again at any time.  Fitch Ratings on Friday downgraded France’s credit rating. Markets could thus find Gold and Silver in higher demand again as a hedge or an alternative currency. Also the cost to bet against gold, by shorting, has increased recently. That suggests that speculators are becoming less convinced that gold is headed lower. Gold prices have been stuck in a tight range over the last three sessions, failing to cross above the $1,300 mark as investors take the view that the market will have to think of life without quantitative easing, at least in the United States. Tapering of the Fed’s $85 billion monthly bond purchases would support a rise in interest rates and bolster the dollar, reducing gold’s attractiveness and vice versa.

A line from an article from Zerohedge summarizes it beautifully:

Of course, nothing fundamental actually matters as markets continue to be on ultra low-volume, “drift higher” autopilot until tomorrow’s Ben Bernanke semi-annual muppet show in Congress, when he is expected to refill the hopium trough once more and finally send the S&P above 1700 on central planning.

Bernanke is sending confused messages and I think the guessing will continue, and he’s likely to keep his words cloudy and unclear. Bernanke will without a doubt try his best to justify both stands (though contradictory) through his testimony the next two days. But all said and done and despite who (Dr. Jekyll or Mr. Hyde) speaks, – Bernanke is unlikely to deviate much from his usual two sidedness and will surely continue the Fed’s $85 billion a month bond purchase plan for the foreseeable future, along with the threat of tapering in tandem. 

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