Art Cashin On Chief Justice Bernanke's "Delay And Pray" Strategy
A few weeks ago America had to go through the supreme political theater that was the SCOTUS' unprecedented and uber-political decision on Obamacare, which in attempting to overcome allegations of partisanship, only succeeded in reinforcing these even deeper. Now, with everyone expecting Bernanke to launch QE every time there is a 1% downtick in the Russell, our honorable Chairsatan is in the same position: he needs to do something but can not afford to appear political with the presidential election just over 3 months away. In other words, from the soap opera about the Supreme Court of the US, we now move to the one about the Supreme Federal Reserve of the US. And the trouble for those whose investment strategy is hope and prayer is that the Fed is becoming aware of this reflexive phenomenon, and just for that reason may delay QE until September, by which point the US, and global economy, will be in freefall.
From UBS Financial Services:
Is Bernanke About To Pull A “Justice Roberts”? - Traders are beginning to wonder if Fed Chairman Ben Bernanke is considering take a leaf from Justice John Roberts’ playbook.
You recall that lots of court watchers saw Roberts’ decision on Obamacare as a means to address two court problems. The first and most important was the growing concern that the Supreme Court’s reputation was under attack. Too many 5 to 4 decisions on key cases had raised charges that the court had become politicized.
The second problem (for Roberts) was how to approve the law without giving Congress new and sweeping powers over both individuals and commerce.
Roberts’ solution was to approve the law (breaking the presumed 5 to 4 bloc) but approve it on narrow grounds, calling the mandate a tax not a penalty.
Now Bernanke and the Fed are the objects of criticism. The institution is being openly challenged in Congress and elsewhere. A big part of the challenge is the effect of Fed actions on the election (recall Rick Perry’s comments on further easing).
So, traders wonder if he might try a Roberts-like solution. The economy needs help but how can they do it without the possibility of influencing the election.
One possibility is delay.
If the Fed began a new program right now, its economic impact might begin to show up in the numbers in the weeks just before the vote.
That leads to speculation that the Fed might choose to drag its feet - to wait until September to implement a new program. That way the institution would be serving its mandate (helping the economy) without influencing the election.
It’s only speculation but, so far, the Fed doesn’t look to be in a rush. We’ll watch next week’s FOMC meeting for further signs.