The FED statement was absolutely a disaster for the stock market bulls...
It showed a FED that is seriously concerned about the future of ASSET INFLATION as a way to "grow" the economy...
Saying ominously:
"Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace. As yet, the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labor costs in check, and inflation expectations remain contained. Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures."
The reference to commodities inflation is new...and potentially devastating to continuation of ASSET INFLATION as the strong suit for the US economy. Of course, none of this is new. Many people, including this Blog, have been warning about it for years...but we were usually dismissed as Nervous Nellies who had a problem with people "making money" and "having fun."
And for a while the asset inflationists held sway under the Greenspan FED...
But now the US economy is near total in it's de-industrialization...the trade deficit is structural...dollars abound in foreign central bank...and few "investible assets" are available to the new holders of American debt...except naturally more debt!
Hence the run up in commodities...as foreigners express their frustration with the unsustainablity of the US economy...based almost totally and debt and deficits FOREVER.
The notion that "things will self correct" and someday the "factories will come home from China" is economic rubbish...yet that was the sum and substance of the Greenspan argument...soon to be discredited in very unpleasant ways...as Bernanke raises rates again and again...til?
Well perhaps 7% will be a good holding point...but if the US deficits continue up...so will interest rates.
As in the 1970's...rates can go to unbelieveable levels...20% is neither unheard of, nor out of the question.
Bonds sold off after the FED statement...Oil spiked...and Gold treaded water.
But know this...we are destined to live in "interesting" economic times... The Greenspan years are over. Our Merlin is back in his cave for another thousand years.
Bernanke will be the "fall guy" for the 20 years of bad policy that have brought us to this rather dismal situation.
