8/24/2012
By David Urani

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Like Pavlov's dogs, the market got fired up this morning when investors got a copy of a letter Ben Bernanke sent to Rep. Issa concerning some questions about the Fed's practices. The buzzwords were "There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery." It's more of the usual Pavlovian response to any whiff of QE. But I'd say we shouldn't be too excited about this. Looking at Bernanke's letter it seems like more of the same to me. After saying that the Fed does have room to ease, he goes on to say how any action needs to be weighed with the risks, and that the FOMC will review economic data to decide if any further action is needed. We've heard it before. In the end, it's going to continue to be a case of QE coming only if the economy deteriorates further.

Yet, at the same time I feel Bernanke is smart enough to know that the very suggestion that he might ease is enough to goose the market. I wonder if, for the past few months, he's been purposely dangling the carrot just out of reach. It's not a bad strategy if you ask me. If Ben can continue to cry wolf and bait the market into going higher, he can almost achieve the desired effect of QE without even doing anything.

I'm not necessarily saying that Ben is purposely playing us like that, in fact I tend to think he's a pretty straight shooter. But the point is, if he wanted to do it he could. And whenever the market pulls back, as it has been the past few days, it certainly doesn't hurt to drop a friendly reminder that he's there for us, as he did. It does make you wonder. If I were in his shoes I'd probably do it.

David Urani
Wall Street Strategies