Thoughts

Positives

1. Bernanke showed his version of self restraint
2. July Durable Goods orders both headline and ex transports exceed forecasts but we know the world changed in August
3. July New Homes remain depressed, falling to lowest since Feb, better chance to eat into excessive existing home inventory
4. China preliminary HSBC mfr'g index rises to 49.8 from 49.3, below 50 still but better than feared
5. July Euro region mfr'g and services composite index unchanged vs expected decline
6. Better than expected earnings from Credit Agricole help to lift most European bank stocks on the week

Negatives

1. July non defense capital goods ex aircraft, a core cap ex reading, falls 1.5% even before Aug turbulence
2. While Initial Claims boosted by VZ strike (yes, they get paid to strike) they remain stubbornly above 400k
3. Richmond Fed mfr'g survey falls 9 pts and follows weakness seen in Philly and NY regions
4. UoM confidence final reading has it at lowest since Nov '08 but bounces from initial report of a 31 yr low
5. Greek bailout in disarray but should get resolved, Greek banks hanging on by a thread
6. Germany IFO business confidence falls to lowest since June '10, ZEW investor confidence plunges
7. July New Homes sales remain depressed, no end in sight
8. MBA said purchase apps fall to lowest since 1996




The Fed might ease further if its baseline forecasts are too optimistic.

I believe one of the reasons the market has rallied after Bernanke's comments was his reference to a two-day Fed meeting in September, which will allow for a fuller discussion of the benefits and costs of the available policy options.

To me and many observers, this is a clear indication that the Fed might ease further if its baseline forecasts are too optimistic.

Also, Bernanke reiterated the importance of disciplined fiscal policy and the need to adopt a housing policy that could turn the residential real estate markets around.




Corporate pension plans are rumored to be setting up for a large reallocation out of fixed income into stocks.

I think this one is important.




Bernanke's remarks:

In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. We will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September, which has been scheduled for two days (the 20th and the 21st) instead of one to allow a fuller discussion. The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability.




“Life is about not knowing, having to change, taking the moment and making the best of it, without knowing what's going to happen next.”

-- Gilda Radner