Saturday 31 March 2007

Hope is a dangerous thing

When the Chariman of the Federal Reserve starts to sound like a technical analyst desperately searching for evidence to support an optimistic view of the world its time to be concerned.

"Consumer spending which has proved quite resilient despite the housing downturn and increases in energy prices might continue to grow at a brisk pace, stimulating a more-rapid economic expansion than we currently anticipate,"

Yeah it might, then again it might not and what if it doesn't? Well that's probably a little too frightening to think about just now. For the time being Bernanke's testimony seems to be aimed at reassuring markets rather addressing the real concerns of an economy grinding to a halt.

Here's another:

Thus far, the weakness in housing and in some parts of manufacturing does not appear to have spilled over to any significant extent to other sectors of the economy,"

Not particularly reassuring in the same way a doctor telling a paitent with malignant cancer that the tumour in his neck has yet to spread to the brain. Benrnake continued on:

...."The implications for these developments for the housing market as a whole are less clear,"...."The impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained."

So from the Fed's top banking offical Susan Biers the language has now been changed from "contained" to "seems likely to be contained" An amazingly hopeful sounding statement in the context of Biers earlier observation that the current problems going on in credit markets "is just the begining."

And so the scenario that all is calm continues to be expounded and the market rallies on any evidence that props up the offical position. However at some point optimistic assertions in the face of conditions that support none becomes an act of denial. Then the question becomes: How long can a state of denial be maintained?

0 Comments: