Having driven many a country road at night in my lifetime, I’ve had the unfortunate experience of meeting up with deer who were trying to cross the road. Well, you might say that I should just relay the old joke, “Why did the deer (chicken) cross the road — to get to the other side.” (I’m here all week, try the veal, and don’t forget to tip your waitress!) When confronting a deer that’s traversing the road, automobile drivers are usually successful at avoiding the deer. But on the rare occasion when the driver is not in total control, the consequences can be disastrous — and just before the nighttime collision or the frightening near miss; the deer is typically caught in the proverbial headlights.
During Ben Bernanke’s recent press conference, I had flashbacks of my near misses of so long ago. When asked why interest rates were rising so dramatically in the past few weeks, Bernanke inquisitively scratched his cheek, anxiously tightened his lips, surprisingly bowed his head, and responded, “Beats me, we’re all surprised.” As the most recent Federal Open Market Committee (FOMC) report was presented, we were all led to believe that quantitative easing would go on forever. When requested to clarify, Ben curiously scratched his cheek once again, apprehensively tightened his lips even tighter, suddenly bowed his head, and said, “Tapering will conclude by 2014 or maybe by the end of this year.”
Upon unexpectedly encountering an object in the road, a typical driver’s response includes fiercely slamming on the brakes, instantaneously swerving the vehicle, or simply bracing for impact. Yet, regardless of the action that’s implemented by the driver, it’s usually not a good outcome — and this very same idea can be applied to the financial markets as notably witnessed during the press conference when Chairman Ben was coming clean regarding his acknowledgment that Keynesian economics clearly isn’t working.
Ultimately, the tone of the press conference became one of hopeful prayer that somehow inflation would rear its ugly head. Thus, the financial markets of the world truly experienced a defining moment when it was discovered that Ben Bernanke and the Federal Reserve greatly fear deflation over everything else. And when deflation is the game, stock market leverage and risk instantly go out the window. At that point, it becomes an exercise of who can get out the door first.
These recent words and inferences from Bernanke can be thoroughly analyzed and deeply debated. Nevertheless, during this most recent Q&A session, there was absolutely no doubt that Ben quickly found himself surrounded by a whole new reality — he was definitely the deer caught in the headlights on a desolate country road.