The number of public comments from normally quiet Fed members has MoneyShow's Jim Jubak wondering whether they actually support a further pullback in stock prices.
Could the Fed be actually talking this market down?
It's a thought that comes to me because the Fed usually is a fairly disciplined group. They stay on message. You've got a few outliers—people who don't believe that inflation is dangerous, people who do believe inflation is really dangerous—but those are usually outliers.
The problem right now, the thing that's different right now, is you're getting a lot of people who normally don't speak and say anything who are talking. In fact, a lot of people are talking. The Fed is like loose lips, and normally Ben Bernanke says they sink ships, but right now he doesn't seem to be restraining people.
This may be intentional, that part of it may be that you've got a stream of people out there, all of whom are essentially pounding home the same message, which is that at some point the Fed will have to start cutting back on its buying of mortgage-backed assets and Treasuries, $85 billion a month.
At some point we'll have to do that, the Feds are saying. We're just reminding you of that over and over again. We're not saying we're going to do it now, but maybe it could come as early as September. Oh, maybe it could come as early as August.
It seems to be talk that's guaranteed to make the market nervous, and to make the market remember that this money has to go away at some point. I don't think it means necessarily that the Fed is really going to do anything in August or September, or even October, but I think the whole point right now is that the Fed would really like to take a little bit of air out of this bubble.
We're still up 16% year to date on the S&P. That's a pretty good return for a whole year, let alone for five months. I think what the Fed would like to do is to talk that down a bit, because it will be much easier to exit without creating a big hoo-hah if the market isn't up 40%, or 30%, or 25%.
So I think there's some chance, some possibility, that the Fed is actually doing this on purpose, and if that's so, there are two takeaways from that. One is that it's a reminder of how really artificial this market is on both ends: that the rally has been based on the Fed pumping money in, and this decline, which is only about 3% or 4%, is based on fear of the Fed taking money out. That's one thing.
The second is how difficult it's going to be for the Fed to manage this transition, because think of how nervous people are when the Fed hasn't done much more than hint at the possibility that someday it's actually going to happen.
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