The mid-term election results appear to match what market participants expected in the days leading up to voting yesterday. We will refrain from political commentary other than to make the observation that there is a difference between “benign gridlock” when the country’s course is essentially sound and gridlock when our fiscal situation is heading for disaster — which to us seems more like a suicide pact than a political strategy. Meanwhile, the Federal Reserve is set to announce the details of its second round of quantitative easing later today. QE2 is essentially a euphemism for printing money, which in our modern economy takes the form of the Federal Reserve buying treasury bonds of intermediate to long term maturities. Read this article for more commentary.
In an interview with The Financial Times, Jeremy Grantham discusses a study on various financial bubbles that his firm has recently completed. Mr. Grantham found 34 examples of bubbles that fit his definition as a “forty year event” statistically. Of these 34 bubbles, 32 have moved back to trends prior to the bubble forming. The two bubbles currently outstanding are the U.K. and Australian housing bubbles which Mr. Grantham believes are driven by low rates on floating rate mortgages. Read this article for more details and a link to the interview.
When President Obama nominated Federal Reserve Chairman Ben Bernanke to a second term last August, few observers expected anything to derail the confirmation process in the Senate. However, The Wall Street Journal has reported that Mr. Bernanke is rapidly losing support in the Senate and may not be able to attract the sixty votes required to avoid a fillibuster. Read this article for more details and a link to the video.
A very brief video clip of Federal Reserve Chairman Ben Bernanke announcing that the recession is over has been seen on nearly every nightly newscast this evening. What is more relevant are the comments Mr. Bernanke made prior to stating that the recession is nearly over and the implication of his statements on Federal Reserve policy in 2010. Read this article for a video of Mr. Bernanke and analysis of the implications of his views.