Federal Reserve Board Comments

Dr. Bernanke had some interesting things to say yesterday. His remarks had a strong focus on employment and the unemployment rate. The bottom line is that the Federal Reserve Board now sees the US economy as we do. Dr. Bernanke and company expect to see enough jobs created to keep the US economy growing at a mild to moderate pace.

Their GDP estimate for 2012 is consistent with our forecasted growth rate for 2012. This is not a great rate of growth, but it will provide aggressive companies with growth potential.

A complete reading of the article that carried his remarks produces two other noteworthy items. One, is that the Fed’s Beige Book showed that manufacturing continued to expand, consumer spending rose, and the housing market “increased modestly” in most regions.

The health of the manufacturing sector is beautiful to see. America is making more items here for domestic consumption and for export. We are competing effectively in a global environment without the aid of unfair, non-competitive trade barriers and preferences.

This segment of the economy will provide opportunities for companies across a broad spectrum of industries as they search for new clients. We’ll talk about housing and consumer spending in another blog.

The second item to catch my eye was the quick comment in print and on the web about how the Dow Jones Industrial Average closed down 53 points because the relatively upbeat remarks by Dr. Bernanke meant there would be no additional “juice” for the economy.

First, a 53 point change out of 13,000 is statistically insignificant and meaningless, thus to ascribe meaning to it is an exercise in creative writing. However, the stated sentiment shows that there is an expectation of federal help and intervention, as opposed to the willingness to let the market determine what is the correct pricing for the market.

Greed needs prices to go up and up and up. A rational market position realizes the market can make valuation mistakes on individual stocks through the short term, but in general the value of the market should be driven by market forces, not government “juice.” A growing dependency on Fed stimulants is unhealthy, at it belies an underlying belief that the system works and self corrects.