Unlike the fictional town of Lake Wobegon, it has not been a quiet week on Wall Street. Virtually every financial asset is down. This week we look at different perspectives on Federal Reserve communications occurring last Wednesday when Chairman Bernanke discussed tapering the pace of bond-buying.
No end in sight to wild markets. Always brilliant in his assessments, Mohamed El-Erian of Pimco summed it up well: “the proximate cause for recent turbulence is the change in how markets perceive central banks’ willingness and ability to support artificial asset prices.” El-Erian was surprised by Wednesday’s aggressive (“hawkish”) remarks by Chairman Bernanke on the prospective tapering of unconventional purchases of securities. “Judging from Chairman Bernanke’s remarks, the Fed is confident that improving fundamentals will overcome current turbulence and validate high prices. With others less sanguine about economic prospects, prices are now converging down to fundamentals rather than the other way around.” He notes economists are all over the map in their diagnosis of what ails the global economy, but “all agree that western economies are yet to restore the engines needed for ‘escape velocity’