Thursday, September 22, 2011


The economic ball is no longer in Bernanke's court.

I am reading in the postmortem of policy today that there are still some strategists who view Operation Twist as benefiting economic growth and that it could help to stabilize and then rally risk assets.

From my perch, I still don't know why there will be any real benefit to the economy from this strategy, as the shape of the curve and the level of interest rates are not currently growth constraints.

The Bernank does not control fiscal policy and the economic ball is no longer in his court -- it is in the hands of our political "leaders."

Bottom line, I see the release as a slight negative to risk assets because it emphasizes (for those who live in another bullish economic galaxy -- and there remain some!) that the current economic challenges domestically will likely continue to be in place absent pro-growth strategy.

Bottom line, the Fed said nothing different than expected regarding the domestic economy (it stinks!) and its Operation Twist (aimed at cheapening money further) was materially in line with market expectations.

Pro-growth fiscal policy is the answer. Without it, at best, we muddle along. At worst, we double dip.

Should a divided Washington D.C. not change, we are in for an extended period of uneven and lumpy domestic growth and that's hard for investment managers and corporate managers to navigate in.

HPQ's corporate turnaround will be a process ... a long process. Consumers probably don't care much about the company's misguided capital allocation and expensive acquisitions and management turnover. But the enterprise market seeks out stable partners -- and Hewlett is anything but.

I see continued secular erosion in HPQ's corporate competitive position.

Bottom line, I would look towards the company's competitors' shares, not to Hewlett, for an investment.

Several "leading" Republicans send a letter to the Fed.

I recently expressed a view that any decision of the U.S. to participate in a sovereign or bank rescue package would irk some average Americans (who have been pressured by screwflation, or stagnating incomes and rising costs in the necessities of life) and could further cause a negative response by some of our politicians who, understandably, also want to prioritize the health of our domestic economy.

Yesterday, several Republicans took the unusual step of sending a letter to the Federal Reserve, saying the Fed should refrain from any further "intervention" since they believe quantitative easing has failed to improve the jobs picture or to stimulate growth and, has likely served to reduce the value of the U.S. dollar. That’s something I agree with.

This letter raises the question of whether the small chance of QE3 today, or anytime soon, can be thrown out.

It reads:

Dear Chairman Bernanke,

It is our understanding that the Board Members of the Federal Reserve will meet later this week to consider additional monetary stimulus proposals. We write to express our reservations about any such measures. Respectfully, we submit that the board should resist further extraordinary intervention in the U.S. economy, particularly without a clear articulation of the goals of such a policy, direction for success, ample data proving a case for economic action and quantifiable benefits to the American people.

It is not clear that the recent round of quantitative easing undertaken by the Federal Reserve has facilitated economic growth or reduced the unemployment rate. To the contrary, there has been significant concern expressed by Federal Reserve Board Members, academics, business leaders, Members of Congress and the public. Although the goal of quantitative easing was, in part, to stabilize the price level against deflationary fears, the Federal Reserve’s actions have likely led to more fluctuations and uncertainty in our already weak economy.

We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy. Such steps may erode the already weakened U.S. dollar or promote more borrowing by overleveraged consumers. To date, we have seen no evidence that further monetary stimulus will create jobs or provide a sustainable path towards economic recovery.

Ultimately, the American economy is driven by the confidence of consumers and investors and the innovations of its workers. The American people have reason to be skeptical of the Federal Reserve vastly increasing its role in the economy if measurable outcomes cannot be demonstrated.

We respectfully request that a copy of this letter be shared with each Member of the Board.


Sen. Mitch McConnell, Rep. John Boehner, Sen. Jon Kyl, Rep. Eric Cantor