The Fed Confusion and The Volatile Markets

There was a bounce today. When the indexes rolled over in the early afternoon my screen was completely red and most of the names I was looking at were down any where from 5% to 10%. Then the screen started flickering only negative 2% to 3% and things started to brighten as the recovery took place. By late in the day my entire screen was green and even the financials were rallying.

What caused this turn? Hard to say. Bernanke is supposed to speak tomorrow maybe he will hint at lower interest rates or maybe he won't. This Fed seems really confused. Two members who recently spoke about the economy gave very different biases - one was saying that rates should go lower and the other was saying that rates should not be changed. How can this be? The Fed is supposed to be this brilliant group of individuals with up to the minute detailed information about everything going on in the economy in the regions they cover. If the Fed is confused then the trader is definitely confused and when the trader gets confused he buys and sells stocks at a whim. Hence the volatility.

When looking at the SF Fed rep and the Texas Fed rep it does make sense that they have opposing views. The Texas rep is in the midst of a booming economy due to the energy boon caused from almost $100 / barrel. The SF rep is feeling the credit crunch as SF financial firms get hammered and the Real Estate downturn continues to worsen. Wouldn't it be great if the Fed could lower interest rates in one geographic part of the country and leave it unchanged in another part. To send the money where it is needed. Maybe that is what they are trying to do with those special discounted auctions that the Fed just added to its tool box. An interesting thought.