Hurricane Ben Falls Flat

 | Aug 29, 2011 | 12:00 PM EDT
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It came and went with but modest carnage after being built up well in advance. Packed with a powerful punch and having a platform to shine, the final outcome fell as flat as an open bottle of Pepsi. Dare I say that it was a full-fledged disappointment?

If you think I am describing Hurricane Irene, guess again. I am talking about Fed Chairman Ben Bernanke's Jackson Hole speech, which had an end result similar to the much-hyped, supposedly unprecedented, Hurricane Irene that blew through the East Coast.

Jackson Hole was scripted to be the beacon of hope for the ship caught in troubled waters known as El Market, but Captain Bernanke forgot to drop the two most sought after letters of the day: "Q" and "E." In the aftermath of the speech, much as with Irene, we are left with a couple of certainties.

Certainty 1: Ben & Co. Had Best Not Disappoint

These Federal Reserve ladies and gents wanted to play the stock game (my money is on the traders), now they are fully entrenched. Apparently, acknowledgement that additional tools exist to foster full employment in the context of price stability and extension of the September FOMC meeting to two days were signals of further unconventional policy measures. After an initial wallop as Bernanke opened his mouth, stocks staged an impressive reversal on the hopes that September will bring a box of monetary policy 'roids back into the fold.

Bernanke has done a superb job of guiding the markets via words, effectively buying time in order to gain certainty on whether economic developments are new trends. By noting the aforementioned items, Bernanke will have a few added weeks to assess economic data, possibly arriving to the next FOMC meeting with guns blazing to solve economic ills, while the market hangs on his musings at J-Hole. No guns blazing? The market is likely to take its basketball and head home.

Certainty 2: The Not-So-Invisible Hand of the Fed Expects 2H Recovery, Still

The Fed continues to cling to the expectation that growth will accelerate in the third and fourth quarters of the year, despite the final estimate for 2Q GDP being revised lower and the sharp drops in regional manufacturing reports. Hmm, good luck fellas.

That said, there was a tall glass of cold oddities poured to listeners of Bernanke's speech. They included:

"The growth fundamentals of the U.S. do not appear to have been permanently altered by the shocks of the past four years."

I suppose the 60-year-old former machinist now pumping gas doesn't qualify as something permanent to the output potential of the U.S. economy. Or, how about state budget cutbacks charting a path for substandard (relative to global competitors) learnings of children to the point where their future economic output is not as good as it could have been?

"Monetary policy must be responsive to changes in the economy, and in particular, to the outlook for growth and inflation."

The market rallied on this statement in my opinion, for Bernanke may not admit it yet, but the market and the incoming economic data suggest economic changes warranting of further outside-the-box monetary policy.

As I dissected the speech, I thought that the dollar is going nowhere but lower (what else is new) on a Fed likely to continue to play catch-up with its policy responses as its growth estimates are too sanguine. Weak dollar, strong top lines for best-in-class multinationals and a strong chance of another march higher in crude oil, benefiting oilfield service names.

All of this is until the gold standard is brought back -- just kidding. Maybe.



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