Bernanke Causes Yesterday's Stock Plunge?
As I was driving home last night, the business report on my local radio channel blamed the day's 1.57% stock plunge on Fed Chairman Ben Bernanke. Let's look at the facts.
According to CNNMoney, Bernanke said the following yesterday in his testimony to congress regarding surging oil and food prices:
"My sense is that the increases we've seen so far -- while tough for many people -- do not yet pose a significant risk to the overall recovery."He went on to call the inflationary impact "temporary and relatively modest."
Give me break!
What in this testimony could possibly be construed as negative news? It's not like he could deny the price of gasoline was going up at the pumps. How could he possibly been more positive than to call the increases temporary and modest and note that they don't pose a significant risk to our economic recovery?
If markets had surged yesterday
There is no doubt in my mind that if the stock market had surged yesterday, the headline would have read as follows:
Stocks surge in response to Bernanke's reassurance!Know we don't know
Humans just can't accept randomness and we must always search for reasons to explain why the market does what it does. That's not dangerous in itself but it always seems to lead us into predicting what the market will do tomorrow which, in turn, always seems to lead us into selling after plunges and buying after surges.
Do yourself a favor and resist the urge to explain why the market does what it does each day. Next time, and every time, you hear a headline like this, think of the commentator explaining why a coin flip came up heads or tails. It's just plain silly!
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