Archive for August, 2012

Time is Coming to Walk the Walk!

The recent rally in the market comes on the heels of a rah-rah speech by ECB Chairman Draghi. In that speech, Draghi stated that the Euro and the Euro Zone would be defended and defended successfully at any and all cost. This speech was truly nothing more than the type of rhetoric that Bernanke has employed since the market has called out for QE3. It is the same type of speech that a bully would give.

The bully’s reign changes over time. At first, the proverbial big, bad bully must fight to ensure that everyone in his turf knows that he will fight at the drop of a hat. He must fight every fight and win every fight in order to establish his dominance. But, these fights can exact a toll on the bully, a toll that can affect his reign. Now, the bully needs to change his approach to a more psychological one. With the fights taking a toll, threatening becomes the bully’s best weapon…….not his fists!

At this point of his reign, the bully relies on his reputation to do the fighting for him. This is what Bernanke has been doing. In almost every statement he has made, Bernanke has stated that the Fed is ready to act quickly and aggressively if the economy worsens to a point of worry. As to what point of worry and whose worry we don’t know, but if it gets to that point rest assured the Fed will act.

But Bernanke has been saying this for 6 months now as the economy has gotten worse in just about everyone’s opinion yet no action has taken place. To be honest, no action has been necessary because his threat of action has held and even boosted the market which in turn has boosted confidence to a point that Bernanke does not have to fight the fight (initiate QE3).

Last week, Draghi took a page from the Bernanke Bullying Playbook and executed it very well. He spoke firmly and convincingly with no doubts as a good bully should. But now a problem exists. As the bully gets older and now can just threaten to fight, it does not mean he no longer has to fight at all ever again. At some point, the bully has to again prove that he is the baddest of the bad, the toughest of the tough.

The time is coming for both Bernanke and Draghi to walk the walk. They have threatened and threatened over and over but soon they will have to prove they can still fight. The question is whether or not they have enough fight left in them to continue to remain the big, bad bully!