A Mixed Economy

After living through a horrible couple of weeks in the stock market which was driven in part by the lousy jobs report that came out on June 1^st, lo and behold, we see a huge rally on Wednesday of this week.  What fueled the rally you ask …Nothing more than pure speculation.

As you know from reading this newsletter every week, the economy is not doing well.  The employment and manufacturing sectors have been deteriorating in the last couple of months.  As you listen to the news and business reports, the talk about the possibility of the country falling back into another recession is once again growing but we are nowhere near it actually happening.

On Wednesday, Federal Reserve Vice Chair Janet Yellen reiterates her own personal views that further action by the Fed for additional stimulus might be necessary to push the economy forward.  Let me be clear, Ms. Yellen said “might be necessary”.  This announcement is nothing new, it is nothing different than we have been hearing for almost a year, yet the stock market investors read into it saying that Fed Chairman Bernake will make an announcement about additional stimulus on Thursday.  The result, the stock market soars 287 points based upon a reiteration of comments that have not changed in almost a year.

Now on Thursday, Fed Chairman Ben Bernake completes his scheduled testimony before the Joint Economic Committee on the economic outlook in Washington…AND HE SAYS ABSOLUTELY NOTHING ABOUT OFFERING UP MORE STIMULUS!  In fact, he talks about how the economy is growing at a moderate pace.  Yellen’s comment, which once again I remind you were nothing new, created a market frenzy in which investors traded on nothing but pure unadulterated speculation.  (Do you REALLY think Yellen would dare say anything on Wednesday if Bernake was going to make an official announcement on Thursday?   NOT A CHANCE!).

I have to imagine if I was the Fed Chairman sitting in my living room on Wednesday watching the market rally on people believing I am going to say something on Thursday, that I have absolutely no intention of saying, I would be laughing my butt off.

The economy is moving along ever slow slowly.  Yes we have employment heading in the wrong direction along with some other economic indicators, however, by no means are we self destructing the way we did in 2008.  Unless there is a major downturn in the economy, the Fed is not going to do anything.

The biggest threat to our economy right now comes from outside the United States.  Slowing growth in China combined with the European Debt Crisis remain the biggest factors impacting our economy right now, and there is NOTHING the Fed can do to change that impact.  Look at everything the Fed has already done by keeping interest rates artificially low, yet the impact has been minimal in driving the economy forward..  There are is not much left in the Fed’s bag of tricks that can make a difference.  Only a change in the mindset of the country will alter the direction of the economy.  With the election looming this year, nothing is likely to change until after November..

JJ Mack