Bernanke is Disingenuous, Wrong, and out of Options

So many swirling intertwined bits of information out over the past 2 days! Today was a Goliath of market moving macro game changers. I will try to put together a coherent post, but I can make no guarantees as I was insured by AIG and I am "too small to matter".

Housing Starts Rebound
This story is so yesterday, but I just wanted to put in my 2 cents. If you look at the number the only "rebound" was in condos and multi family apartments. Why anyone would want to build any more condos is beyond me, but apartment building makes sense going forward. What was really funny was the ripper to the upside for homebuilders like Toll Brothers (TOL) who do not even build apartments. Home builders ran again today on all the pro housing (in theory) news, but I will cover that in a minute.

Multiple Media Appearances
Ben Bernanke, the only sitting FED head to ever be on "60 Minutes" last Sunday. President Obama on Jay Leno tonight (could not even wear a tie!) for the first time in presidential history followed by his own "60 Minutes" Sunday show and an address next Tuesday to the nation. If you thought things were fine, why all the holding hands sessions boys?

Loss of Shares to Short
More and more this seems to be yet another wrinkle in the government manipulation of the markets. Zero Hedge has the scoop.

Haters of Gold United
Over the past two days I was overwhelmed with the cascade of anti gold posts across the entire financial press. This included mainstream sources and blogs. I must have read at least 50 thousand times that "the pennant formation in Gold will resolve to the downside pulling gold to the $700 range on its way to $500" on its way to zero no doubt!

An article covering the idea of a supranational reserve currency (idea by Russia) had some telling tidbits about how most feel about gold and a gold standard of money:

Analysts said the new Kremlin proposal would elicit little excitement among the G20 members.
"This is all in the realm of fantasy," said Sergei Perminov, chief strategist at Rye, Man and Gore. "There was a situation that resembled what they are talking about. It was called the gold standard, and it ended very badly.

I would advise anyone interested in this topic to research the validity of the above quote.

I was at a loss to understand the pure hatred of gold. I still am. Gold rallied late day on the new move by the FED (covered in next section) and this surely will engender even more anti gold bias. Bears should take heart. The IMF would like to expand their cash position by 2-3 times. Who would donate money to the IMF right now? The only way for that to happen is huge IMF gold sales. With the UK looking to get some much needed cash, they too could sell whatever they have left after selling most of their gold at the lows of recent memory. All this supply would blow gold down to those types of levels the chart types are talking about. This would be a great thing.

You read that correct. I would ask the INF and the UK to sell, sell, sell all the gold they can and push the price down to $500-$700 an ounce. At that point it will be load up the boat time, and it would fit perfectly with the move to "quantitative easing" dollar devaluation in play by the FED. In two years with less central bank gold on hand to push prices lower (like it is pushed lower EVERY SINGLE FED ANNOUNCEMENT DAY to off set the inevitable hit to the dollar) and with gold in the hands of those crazy "gold bugs" everyone hates I would like to see where gold is at that point.

Bernanke is Disingenuous, Wrong, and out of Options
Today the FOMC made the move to actually implement "quantitative easing" (QA) which besides being very hard to type is still not understood by this blogger. I have said before and will again: I understand the mechanics of how this is done. I understand that it has been done elsewhere before. What I cannot fathom is why in an open market players would allow any government to "print" money to buy it's own debt and pretend those buys are real money coming into that market with no consequences.. I guess you have to be an economist!

Ben Bernanke is proving to be every bit the disaster that Greenspan ever was, and this is happening much faster for him. Let me count the ways:

Bernanke is Disingenuous
On "60 Minutes" and in other talks as of late Bernanke has said he expects a turnaround in the economy by the end of 2009 and maybe even growth in 2009. If Ben thinks things are on the mend, why would he embark on a "first time in US history" move of QA? To be fair his comments were qualified with a ton of "if..then" type statements, but still to see this monster policy move not 4 days after his "all is well" show is unnerving. If you believed things were poised to work out as is, why pull out the one final stop? Just to make sure?

Bernanke is Wrong
It is Ben's laser like focus on housing, and really mortgage rates, that do him the most harm. Bernanke has a chart somewhere (maybe Krugman borrowed it) where if you lower mortgage rates by X amount you will get Y level of home buying. While that MAY be true in normal markets, what exactly is normal about these markets? All time low mortgage rates have been around for years with no aid to home prices. What will another 1-1.5% lower mortgage rate, the target of the FED, do to relight the home buying fires except at the margins?

Bernanke should answer himself the following questions:
- For the current all time low mortgage rates, what level of home prices does his model predict?
- Are home sales anywhere near that level?
- Will another 1-1.5% lower rate make up the difference?

Homes are a dead asset class for some time. Unless the lower rates are accompanied by a return to no documentation, no income verification, no down payment loans Bernanke is going to spend a Trillion dollars for nothing.

Bernanke is Out of Options
That was it folks. The last big trick in a bag full of goodies. The only available option to the FED now is to make current TALF's, QE's, and other games bigger. That's ball game.

While I am sure there will still be some creative stuff on the way, the big guns have been fired. Bigger ammunition can be fed into the gun, at least until the fiscal bullet gets lodged in the gun barrel and backfires. Maybe loyal reader Watchtower can confirm this, but I am pretty sure a gun backfire causes serious damage to the shooter. Sadly, while the FED is pulling the trigger We the taxpayer supply the head, torso, arms and legs that will get hit by the resultant shrapnel.

Things changed today. With options expiration due for Friday I expect fireworks of all sorts, and probably from some areas not expected. Risk is high long term and short term.

I cannot shake the feeling like something very wrong was done today.

On Another Note
Loyal reader Kevin remarked that he liked the image on Sunday of what a view of Saturn would look like as seen from the moon Titan. I came across a new set of pictures that are wondrous and wild to see. Below is a picture of Saturn, as seen by the Hubble telescope, that catches 4 moons of Saturn in transit across the Saturnian face. Seen below( from left to right) are the moons Enceladus, Dione, Titan, and Mimas (far right). titan is the huge reddish moon seen near the top of the planet:

Stunning, simply amazing.

Have a good night.