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August 16, 2007 (9:00 AM)
Will Poole Get His Calamity Today?

I am not sure why today’s policy makers are blurting out anything that seems to come to mind, but between Jean-Claude Trichet’s ‘please try to keep your composure’ and now Poole’s ‘we are waiting for a calamity before doing jack’ (paraphrased of course), is it any wonder that investor fear is building by the day?

Not only did last weeks mild sell off bring out the central bank liquidity pumps, but it also brought out timely statements from the
U.S. Federal Reserve board and the Bank of Canada (not to mention a running dialogue and endless supply of cash from the ECB, optimistic comments from Bush, Paulson, and others). Did all of this rhetoric amount to anything or did it simply weaken similar comments that will be made when the next crisis strikes?

In my mind central bankers should make very brief statements after a calamity to try and help calm investor nerves. Moreover, they should – as Greenspan noted in Fed minutes on countless occasions – be very careful about saying much of anything when their policy objectives are in a state of flux. As for trying to alleviate the lack of liquidity in very specific markets, this can be accomplished by making phones calls, holding secret meetings, and promising bailouts to a few key players willing to step up and take on some more risk.  Very little is accomplished if the Fed takes the time to say they are injecting liquidity and markets respond negatively.

In short, as policy makers call for calm, offer rhetoric/liquidity aimed at stemming a crisis, and continually claim that a recession is not in the cards, the average investor is left watching this soap opera with greed and panic spinning wildly in their heads. The cash heavy investor continues to hunt...

U.S. stocks are headed for a weak open this morning.
 

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