Cocoa flash crash, Rule 201 and the Bernank
The market sure did have a change of character yesterday. The “First day of the month, up 1%” crowd got a taste of what it has been like to be a bear since the famous Bernanke Jackson Hole speech in late August. Between cocoa flash crashing and falling more than 10% in less than a minute and the constant stream of Rule 201 short sale activations, yesterday was certainly a change of pace from the mundane “gap up morning-flatline afternoon” tape that has dominated the market for so long. The price of oil certainly had a lot to do with the negative action in equities, but the lack of anything new coming from the Bernanke Senate hearings was more of a reason why the equity market threw a tantrum. It appears that the stimulus addicts were not that happy with their dealer yesterday.
More telling was the Bernanke Q&A session which seemed to have much more bite than usual. There was a constant stream of questions on QE and its effectiveness (or rather lack of effectiveness). It seems that our leaders in Washington have finally caught on to the other Ponzi scheme that has been going on for the past 3 years. There was also a “subprime is contained” moment for Bernanke when he said, “The most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation.” Let’s all remember this line “temporary and relatively modest increase in inflation” when we are shelling out over $4 for a gallon of gas soon. The American public knows that prices are rising and to try to fool them with this statement just isn’t working anymore. The public and politicians are tired of high unemployment and falling home prices and it looks like they are losing faith quickly in the Bernank.