Wednesday, February 28, 2007

The Market Calms Down - Bernanke Helps

The correction in yesterday's stock market is a reminder that markets don't move up forever in lockstep with low volatility and complacenty, and that some retrenchment is always necessary and healthy. After the settling out today it was a good wake up call that risk does exist, but also that long term fundamentals are in tact for sound U.S. economic growth.

Fed Chairman Says Markets Working Well - Associated Press - February 28,2007

Bernanke Says Markets Appear to Be Working Well With No Big Change in Economic Outlook

"WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke told Congress on Wednesday that the administration and federal regulators are closely monitoring financial markets in the wake of the biggest sell-off in stock prices in more than five years but so far the markets appear to be "working well.".....

....In what might have been a reference to Greenspan, Bernanke testified at one point that there did not appear to be a "single trigger" to Tuesday's sharp sell-off, which saw the Dow Jones industrial average fall by 416.02 points.

Some analysts believe that Greenspan's comments over the weekend that there was a possibility of a recession by the end of the year along with a sharp drop in China's Shanghai stock market contributed to Tuesday's big drop on Wall Street, which saw the Dow Jones industrial average fall by 416.02 points.

But Bernanke let members of the House Budget Committee know that he didn't intend to assign blame.
"There didn't seem to be any single trigger of the market correction we saw yesterday," he said in response to a question. "I don't think it would be useful for me to try to parse the movement into the components associated with different pieces of news or pieces of information."

On Wall Street, investors seemed to take comfort from Bernanke's comments that there was no single trigger to the big selloff. At midday, the Dow Jones average was up 42 points after having been up by more than 100 points earlier in the session......

....He said there had been "no material change in our expectations for the U.S. economy since I last reported to Congress" when he delivered the Fed's latest economic outlook two weeks ago.

"We are looking for moderate growth in the U.S. economy going forward," Bernanke said. He said that if current corrections under way in housing and the amount of inventories being held by business stabilize in coming months, the economy should begin to rebound from its current slowdown by the end of the year....

Some key points in Bernake's testimony today. He stated that he didn't see the isolated subrime mortgage market issues spreading into a bigger problem , also there was a chance that if housing stabilizes the first half of the year (fedspeak for it's stabilizing - similar to what Alan Greenspan has said a number of times that housing has stabilized) that the U.S. economy could strenthen at mid year. He also reiterated that liquidity is not a problem in the credit markets, so that should put a lot of fears to rest about a credit run or anything resembling an S&L type situation.

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