- backpedaling by the Fed; and
- QE3 tapering.
Lessons From an Averted Crisis Posted at 12:09 p.m. EDT on Thursday, June 27 Was it all a dream? Or, more like it, a nightmare? A week ago today, this market was annihilated as a confluence of ugliness -- the Fed's revising of growth, the collapse of the Chinese banks and the riots in Brazil. These weren't Portugal, or Greece or Cyprus. Huge markets, markets like the Philippines and Indonesia and Mexico, pretty much crashed as money came out of their bonds and stocks in torrents. These were very real threats to the bull market in stocks. They were a clarion call that turmoil globally led to buying cash -- not even bonds, specifically the 10-year. But look what has happened since then. The Chinese, who seemed on the verge of causing a Lehman-like collapse in their banking system, switched direction, and, instead of choking off the bad-actor banks, actually flooded them with liquidity. Brazil? When a million people take to the streets, you might even expect a coup in what had been a stalwart growth democracy, albeit a corrupt one. Now the government is making noises about cleaning up its act and taxing the rich, and the riots have lessened in intensity. Southeast Asia has calmed down, and the Philippines just had its best two-day back-to-back rally ever.
But no change has been more modified than what the Federal Reserve did to backpedal furiously from its statements. We have in this country a history of the Fed not really caring about the consequences of its actions. If the Fed made a move, you lived with it, and the Fed just hung the economy out to dry. However, within 24 hours and a world of hurt in the bond market and emerging markets, key players in the Federal Reserve, including presumably Ben Bernanke, let The Wall Street Journal, The New York Times and The Washington Post know that the Fed in no way meant to do anything drastic, nothing at all. It was all about watching and waiting to see if we got better data. Since then, we have had some good numbers and some bad numbers in keeping with Fed ambivalence, not Fed action.