This is a time when you either know you are into the markets - for all the ups, downs, twists and turns - or you are not. Either your blood gets pumping or you turn away in disgust. My blood is pumping.
Suddenly, global officialdom is concerned about inflation. After creating the genie through so much bad policy - our US helicopter pilot right up there - central banks are trying to jawbone it back into the bottle. Trichet did so last week and the Dollar tanked vs. the Euro. On this side of the Atlantic, da boyz at da Treas and the Fed did the same. Chinese markets are rolling over because of the Politburo's increased vigilance against inflation. People think these clowns set policy but they are simply reacting to public and market angst about the results of all their previous inflationary policy - and the expectations of same going forward.
The US Fed for example cannot do its job as agent of inflation if everyone is screaming about the declining Dollar while paying up for vital resources like oil... like FOOD. I really believe Bernanke is an academic who actually believes his own b/s and thinks he can play good cop and bad cop alternatively as the situation demands. In Q1 he was required to yank the throttle full force and flood the system with new credit while sweeping all those toxic and deadly vehicles - the likes of which Wall Street had enriched itself with - under the Fed's rug to be repaid by the public at a later date. This was inflation - happening right before your eyes - that will be manifest in one way or another down the road. Credit was being created as needed for banks that by all rights should have died miserable deaths right then and there. Instead they play a game they cannot lose as the Fed, with the public still asleep at the switch, did its thing. The two major candidates for president are clueless about economics. The congress is clueless about economics. The public is clueless. We sit back and watch an academic orchestrate a real time experiment in Ponzi economics and hope he's got it under control. Yep, this is healthy.
Meanwhile, yesterday the markets fell for the bad cop routine. The bond market has told Bernanke that he must act tough, so he did. The question of course is whether he is prepared to follow through. With the world's air supply polluted with trillions of financial toxins and the outward signs of inflation forcing policy makers to go all bad cop on our ass(ets), this should be interesting indeed. Just one domino is all it takes for confidence to be lost in an environment where jawbones and possibly policy, are tightening. Yes, interesting times.
