In times of market turmoil there is usually no shortage of finger-pointing and the occasional twisted “conspiracy theory”.
I have seen more than one blog place almost total blame for yesterday’s global selloff at the feet of the Wall Street Journal’s story yesterday morning on the heightened Fed concern over specific European banking issues. The story actually broke on the WSJ the preceding evening, leading to the Asian selloff first and then Europe. It was quickly picked up by other media outlets, including the Financial Times, with the “emergency borrowing” of one unnamed bank called out in particular (which The State of the Markets noted in “Signs of Bank Stress Cropping up in Eurozone”)
This may well be true.
The “conspiracy theory” twist on this is that the bloggers are claiming the “Fed” planted the story, or at least acted as a very willing unnamed source, in order to provide political cover for an announcement of an upcoming QE3.
They point to specific statements in the story such as:
“Federal and state regulators, signaling their growing worry that Europe's debt crisis could spill into the U.S. banking system, are intensifying their scrutiny of the U.S. arms of Europe's biggest banks, according to people familiar with the matter.”
“The Fed is demanding more information from the banks about whether they have reliable access to the funds needed to operate on a day-to-day basis in the U.S. and, in some cases, pushing the banks to overhaul their U.S. structures, the people familiar with the matter say.”
This may or may not be true but it is hard to believe the Fed would intentionally want to accelerate a global banking crisis and fan the flames of fear and panic in the markets. That only makes their task harder, one would think, and have long-term implications for the economy.
It does raise an interesting point to me, however, regarding potential timing for announcing a QE3, if one is to come. Ben Bernanke’s keynote speech is scheduled for August 26 at 10 am EST at the annual Jackson Hole meeting. All eyes will be on this.
However, with Pres. Obama just announcing an early September release of his “major new economic initiatives”, will he want Chairman Bernanke to upstage him?
Unknown and could be argued both ways. But from a trading perspective, it is critically important to be aware of both of these upcoming events.
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