The market’s love affair with Ben Bernanke continued today as stocks rallied on the release of Bernanke’s written testimony. This was in the face of some pretty bearish news. New home sales data was very weak this morning coming in at 309K vs the expected 360K. This was a new low for home sales. It is a notoriously weak time of year for the housing market and I fully expect to see some stability in housing this Spring – particularly as procrastinating home buyers jump in before the tax credit expires. This data, however, shows what the market looks like underneath its calm surface. This is a market that is reeling and still at risk of substantial downside.
Stocks are rallying almost 1% this morning, however, as Bernanke reiterates the need for accommodative measures. Bernanke has essentially become a broken record. He is a one trick money printing pony and will reflate this economy regardless of the long-term destruction it causes. In his testimony he repeated the comments we have heard all too often. The economy is modestly recovering, inflation is benign and low rates are warranted for an extended period:
“The improvement in financial markets that began last spring continues. Conditions in short-term funding markets have returned to near pre-crisis levels. Many (mostly larger) firms have been able to issue corporate bonds or new equity and do not seem to be hampered by a lack of credit. In contrast, bank lending continues to contract, reflecting both tightened lending standards and weak demand for credit amid uncertain economic prospects.”