Dampening the Next Bubble
There is no doubt the Bernanke sees the writing on the wall. His reinstatement did not go smoothly. The Volcker regulations are getting advocates in the Securities legislation and the Deficit Reduction Panel is being put in place. Along with this according to creditable sources the stimulus package of a year ago appears to have created some 2.5 million jobs, ie the numbers are 2.5 million better than they would have been if there had been no stimulus.
All this said, the fact remains that there is a large contingent of the investing world that sees backwards looking for another magical bubble and today’s PE ratios are evidence that that contingent has made a bet. Yesterday’s small increase in the discount rate is not a big move but it is an indication that Bernanke is not going to monetize the borrowings at this stage of the economic cycle. He is well aware of his “helicopter Ben” nickname and he realizes that the administration is tracking on a very conservative level.
Yesterdays high of 1105 in the S&P is evidence that the push towards the 1120 level has been in place and there could be attempts today to show that the discount rate rise is not important. You know what to do at these levels. Gold is becoming a burden to its owners as none of the buying rallys are holding.
Bottomline, investors looking for 2007 again do not have the makings for a next bubble.