Friday, February 22, 2008

A rather unconvincing stock market bounce!

Bernanke’s love for asset markets will force him to repeat the same old mistake
From an intraday low at 1370 on August16, the S&P 500 rallied by more than 100 points to a recent high at 1479. Coming from a deeply over-sold condition the rally was not surprising but disappointing for two reasons. Volume diminished, and on each day of this rally the number of NYSE stocks making 52- weeks new lows exceeded the number of stocks reaching 52-weeks new highs. Still, I doubt that the Fed will resist supporting the stocks market at the expense of a weaker US dollar and higher inflation. This would mean that a new high for the stock market in dollar terms is possible. In this context we should not forget that Mr. Bernanke’s main thesis – about which he has both repeatedly written and spoken – is that the Great Depression could have been avoided if the Fed had flooded the system with liquidity right away. He is also the man who suggested that if deflation became a real threat the Fed could always drop money from a helicopter onto the United States.

For Complete IIPM Article, Click on IIPM Article

Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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