Lesson From Trader Bob
Stocks opened with a flourish, with the NASDAQ up 4.3 percent at the opening following Intel Corp's earnings report late Tuesday, in which the world's largest chipmaker reported signs its business had stabilized in March.
"It's a Trader Bob move," says Jim Bianco, president of Bianco Research in Barrington, Illinois, referring to former Treasury Secretary Robert Rubin. "He taught the Fed not to try to put a low in the market, to wait to act until the market is going your way."
In a statement explaining the rate cut shortly before 11 am New York time, the Fed cited weak capital spending and lousy current and expected profits, although not in those exact words. Despite an inventory correction that is well advanced and resilient consumer spending, the sour business environment, along with the negative wealth effect, "threatens to keep the pace of economic activity unacceptably weak," the Fed said in its press release.
While Greenspan probably spends more time in the physical therapist's hot tub than on the psychoanalyst's couch, economists have no choice but to try and interpret Wednesday's move, especially because Fed officials had done their darnedest to remove any expectations of an inter-meeting cut.
"As an apostle of the New Economy, Alan Greenspan has invested a great deal of intellectual capital in spinning out a scenario in which technological change and information technology spending are creating a new world of more rapid, inflation-free growth," Willmore says. "Freud might have said his attachment to this scenario has caused him to focus on what is happening to the leading companies in the New Economy at the expense of evidence that growth has already started to reaccelerate and inflation is becoming a problem."
Bianco thinks Greenspan has seen the future and wants to insure he's admitted through the Pearly Gates.
"If the economy goes into recession, politically Greenspan can't walk around and say, `The good news is, there's no inflation,'" Bianco says.
"He's determined to get things moving even if it risks inflation because that's not as bad personally or politically."
That brings us to the question of: What next? I doubt the Fed knows. And until I'm satisfied with the answers to why and why now, I'm not going to venture a stab at that one.
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