Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Bond king Bill Gross is right along the same line of thinking as I am on this subject. Unfortunately, moral hazard is now the name of the game, and rather than being dissipated, it has been enhanced. To that end the top headline on CNBC is “Why Fed is likely to Intervene if Market Falls too far” – as if “stock market management” is part of their Congressional mandated duty.
Bernanke wants a wealth effect from equities since he is unable to reblow a bubble into housing, and the market knows it. Hence the temper tantrums each time the market does not get what it wants. Ben also sees how badly the market acted during periods the Fed was not supporting it the past few years. You can imagine they are watching what has happened since 2 PM yesterday in horror. Gross provides more color, and why the market overreacted to a few words yesterday. Again, what that means for the market in the next hour or days or weeks, who knows.
- The stock market is overreacting Wednesday to what the Federal Reserve didn’t say about quantitative easing in the minutes from its March meeting, bond king Bill Gross told CNBC. It’s much ado about nothing or much ado about a little,” the founder of Pimco said.
- “We should think of the Fed as like a chess game where some of the pieces are more important than others,” likening Fed Chairman Ben Bernanke to the king, San Francisco Fed governor Janet Yellen to the queen and New York Fed chief William Dudley to the castle, with the rest of the governors the knights. “You have a story when some of these major pieces, one of the three, basically concedes and says, ‘Check mate.’ But we haven’t seen that,” Gross said. “Until that happens this wordsmithing…is relatively unimportant.”
- But Gross thinks the Fed is very cognizant of the state of the stock market, and if it falls too much it may have to act with some form of easing. The Fed and other central banks have “got to keep going [with some form of stimulus] if they expect equity markets to continue…at this level,” he said.
- “When QE1 has ended, when QE2 has ended, basically the stock market has gone down by 1,500 points the next month or two,” Bill Gross, co-CEO of bond giant Pimco, said in a CNBC interview. “Is the Fed trapped in this conundrum of providing cheaper liquidity in order to pump up the stock market and risk markets? I think they are. I won’t argue…whether it’s good policy, but it’s necessarily policy based on where central banks have led us.”
8 minute video
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