How Many Angels …

can dance on Ben Bernanke’s head?  I just finished watching the Bernanke news conference after the Federal Open-Market Committee (FOMC) meeting yesterday and today … and a vigorous round-robin discussion on CNBC with about eight monetary policy experts.  All the while the stock market sold off over 100 points (at closing, it is now down over 200 points) and the yield on the ten-year note bounced around and then climbed to as much as 2.4%.  This was because Fed Chairman, Bernanke said that, if economic conditions continue to improve in the direction of internal Federal Reserve Bank forecasts, its quantitative easing (QE, or $85 billion monthly purchases of U.S. securities and mortgages) would begin to be scaled back later this year … with the possibility that they would end entirely by mid-2014.

What does this all mean?  Only Big Ben really knows … markets move not just on the absolute direction of interest rates … but on the first, second, and even third derivatives of same.  This is reminiscent of the middle-ages theological discussions about how many dancing angels could fit on the head of a pin … or the Talmudic discussions among Hebrew scholars about the implications of a single scripture word.

One thing investors might be able discern from this calculus … and that is, if Bernanke’s sage words do come true, the Fed will soon be "removing the punch bowl" and our economy should slow down … even from current anemic levels.  This means that the Democrats might have a more difficult time recapturing the House of Representatives in 2014 and maybe even holding onto the Senate … but then, because of the resulting economic bounce, they possibly would have an easier time retaining the presidency in 2016. 

And they say that the Federal Reserve Bank is not political …