Yesterday morning I happened to be watching Bloomberg TV and Jim Bullard, President
of the St. Louis Fed, appeared as a guest. Jim is an influential guy in Fed-dom. The market
was in free fall and Jim just happened to opine that with all the turmoil, the Fed could have
a look at extending the QE program past the October demise date. He was asked to repeat
that message, which he happily did. As word swiftly got out, the stock market ended its free
fall and by today's close had rallied nearly 3%. Jim stopped the carnage for the week, and
with this trial balloon gave the Fed a fall back position if the current policy course continues to
rattle the Street. Jim did say new QE would be considerably more modest, but that fell on deaf
ears.
You will read far more 'learned' commentary about last week and you will have a chance to
peruse far more sophisticated fundamental and technical commentary than what I just said.
But, I think the Bullard remark is what did the trick. For me, it is becoming ever more difficult
to take this business seriously, but let that be a subject for a different occasion.
In essence, and rightly or not, markets players are saying that the global economy will go kaput
and that painful and corrosive deflation may await without further dollops of stimulus from the
powers that be. With conditions in the absence of new sources of liquidity seen as so perilous,
it is fair to wonder why the SPX is trading at 16x net per share and not 10x.
If the markets (bonds included) are right, then that's some set of new clothes the emperor is
wearing.
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