Wikinvest Wire

An update to the "Bernanke Cycle"

Friday, November 09, 2007

The pattern of Federal Reserve actions and responses by various markets, introduced here a few days ago, has been given a name today - the "Bernanke Cycle".

It is now in beta-testing and will likely be subject to further refinement in the days and weeks ahead - suggestions are encouraged. Back-testing begins next week. The latest update includes yesterday's "strong dollar" talk from the Treasury Department.

Here it is - updated today with new location indicators and a new step number 10 - "Federal Reserve talks tough on inflation" - an acknowledgment of the "equally balanced" assessment of the risks of slowing growth and inflation reiterated during yesterday's testimony before the Joint Economic Committee.

The Bernanke Cycle

  1. Federal Reserve cuts interest rates
  2. Equity markets surge
  3. Dollar decline accelerates
  4. The price of oil and gold soar
  5. Treasury reiterates "strong dollar policy"
  6. Housing market problems get worse
  7. Credit market problems get worse
  8. Dollar decline accelerates
  9. The price of oil and gold soar
  10. Federal Reserve talks tough on inflation <----- YESTERDAY
  11. Treasury reiterates "strong dollar policy"<----- YESTERDAY
  12. Equity markets plunge <------------ YOU ARE HERE
  13. Go to step 1
Yes, if equity markets continue on their current trajectory, there is nowhere to go but back to step 1 and the next FOMC meeting on December 11th is a long way off.

Is an interim rate cut looming?

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Anonymous said...

You should add these steps

13 Federal Reserve hints at interest rate cuts
14 Equity markets post modest recovery
15 Dollar decline accelerates
16 The price of oil and gold soar
17 Treasury reiterates "strong dollar policy"
18 Equity markets plunge
19 go to step 1

Anonymous said...

not sure where, but i would suggest a bogus government statistic on inflation and/or employment.

Anonymous said...

I would suggest also adding a Plunge Protection Team at Work somewhere.

Tim said...

A comment from over at Minyanville where a link to the "Bernanke Cycle" is posted: "Good news: We're on Step 12!"

Tim said...

Well, Barry liked this well enough to reproduce it over at The Big Picture.
I can't wait for the results of next week's backtesting.

Independent Accountant said...

Does Fed Head Bernanke need "CA"? No not cocaine anonymous, but counterfeiters anonymous. If there are no chapters in Washington, DC, he should start one. "Hi, my name is Ben. I'm a counterfeiter... "

Anonymous said...

You should add a step for when Cramer begs the Fed to cut interest rates.

Anonymous said...

This is excellent! Congrats on getting out of the Southland before all hell breaks loose there.

Tim said...

Thanks - I'm glad to be gone.

Anonymous said...

One major change to the Bernanke Cycle...

Fed cuts rates again
Stock market rises for 15 minutes, THEN CRASHES....


Anonymous said...

And yet another cut coming soon.


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