January 12, 2006


Indexes Climb to New Highs (Times Staff and Wire Reports, January 12, 2006)

Some analysts attributed the midday turnaround to comments from New York Federal Reserve Bank President Timothy Geithner, who said in a speech that the core U.S. rate of inflation was "quite moderate." That bolstered hopes that the central bank might indeed be nearly done raising short-term interest rates.

Geithner also suggested that changes in prices of assets such as stocks would become more important in the future in helping to shape Fed rate policy.

Such a shift could mean that the central bank would decide to raise rates if it believed that markets had become overvalued — or cut rates if it believed markets had become undervalued.

In the near term, investors appear increasingly confident that the Fed won't raise rates much further. A key catalyst for the new year's rally was the release Jan. 3 of the minutes of policymakers' December meeting. The minutes indicated that most Fed members believed that "the number of additional firming steps required probably would not be large."

Posted by Orrin Judd at January 12, 2006 12:52 PM

Sorry, not getting the title reference.

Posted by: AWW at January 12, 2006 2:16 PM

Lizzie Borden took an ax
And gave her father forty whacks
And when she saw what she had done
She gave her mother forty-one

Or maybe it was the other way around.

Posted by: joe shropshire at January 12, 2006 2:27 PM

Wow - you mean if some says "Irrational Exhuberance" he might actually do something?

Posted by: Sandy P at January 12, 2006 2:34 PM

it means (i think) the fed can stop all the rate hikes (axe hits on the economy), now that they feel inflation is no longer imminent.

Posted by: toe at January 12, 2006 2:55 PM

And if the govt begins to run surpluses (see above) they may need to cut rates to offset the drag of reducing the deficit.

I figured the title was Lizzie Borden, just didn't make the connection to taxes.

Posted by: AWW at January 12, 2006 3:25 PM

Lizzie = Lizzie Borden = alleged axe-wielding manaic who allegedly killed her father and step mother = Alan Greenspan = proven axe-wielding manaic who definitely killed the late-90's tech economy and -- almost, before Bush stopped him -- the post-9/11 economy.

Lizzie Borden was acquitted but that didn't stop people from spreading a unpleasant limerick about her (traditonally sung to the tune of Ta-Ra-Ra-Boom-De-Aye).

Alan Greenspan (emphasis on "span", not "Green") will never be acquitted as far as I am concerned. He killed the tech economy and he tried to kill this current recovery/expansion.

Don't f*** wid da Goose.

Now let us pray, in the words our Brother OJ gave us:

Help us, Obi-Ben Bernanke -- you're our only hope.

Alan Greenspan took an axe,
And gave the stock market 4.5 incremental whacks,
When he saw what he had done,
He said "How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?"

Posted by: Mutha Goose at January 12, 2006 3:35 PM

I don't want the Fed trying to outguess the stock market.

Posted by: Bob Hawkins at January 12, 2006 7:17 PM

Might be an improvement on the stock market trying to outguess the Fed, which is what we have now.

Posted by: joe shropshire at January 12, 2006 8:15 PM

Joe Shropshire: Well, thanks for the nightmare scenario -- they're both trying to outguess the other, and we have a closed loop operating entirely on its internal dynamics, all ties to reality broken.

This is my retirement money we're talking about.

Posted by: Bob Hawkins at January 13, 2006 11:28 AM

and we have a closed loop operating entirely on its internal dynamics, all ties to reality broken

I think "circle jerk" is the term you're looking for, Bob. And yes, that's a possibility, but to some extent you already have that. One of the reasons Greenspan is so cryptic in his public utterances is that he's deliberately trying to send mixed signals, to dampen the feedback between market and Fed to some extent. That appears to have worked for Greenspan but it probably won't for Bernanke, so the best thing to do is make the feedback loop visible and try to figure out how to manage it.

Posted by: joe shropshire at January 13, 2006 1:57 PM

The emphasis is on the Green, unless you have access to some special knowledge.

Posted by: Tom at January 15, 2006 7:38 PM