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Bernanke's Jackson Hole Speech: Maybe You Had To Be There

After Fed Chairman Ben Bernanke began his remarks this morning to the Kansas City Fed's annual symposium in Jackson Hole, Wyoming, share prices in the U.S. stock market jumped about three-quarters of a percentage point in just 10 minutes, and ended the day up 1.9 percent. Most of the speech was a rear-view mirror perspective on the financial devastation of the past year, and yes, he made a few guarded-optimism comments on the economy, and yes, there was some less-bad news on home sales. But it's hard to see what the market is excited about.

When the market started moving just after 10 o'clock this morning, I figured that Chairman Bernanke must have unveiled something powerful: stocks were up and bonds were down, implying that investors' passion of the minute is higher growth and inflation.

The event didn't seem to be on TV or video, so I looked through the seven pages of his speech's fine print. As usual, a well-thought and an informative speech -- a chronicle of the crisis, rescue and regulation of the past year. Nothing very stirring, or even forward-looking, except these few sentences (assuming, of course, that Ben stuck to the script, and didn't do a lot of winking):

After contracting sharply over the past year, economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good. Notwithstanding this noteworthy progress, critical challenges remain: Strains persist in many financial markets across the globe, financial institutions face significant additional losses, and many businesses and households continue to experience considerable difficulty gaining access to credit. Because of these and other factors, the economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels.
So we're not growing, but the prospects that we might grow again are good, and when that happens, it will be slow.

Maybe his comments softened investors up sufficiently to get them panting over the July existing-home sales report, also released at 10 o'clock. Per the National Association of Realtors:

Existing home sales -- including single-family, townhomes, condominiums and co-ops -- rose 7.2 percent to a seasonally adjusted annual rate of 5.24 million units in July from a level of 4.89 million in June, and are 5.0 percent above the 4.99 million-unit pace in July 2008. The last time sales rose for four consecutive months was in June 2004, and the last time sales were higher than a year earlier was November 2005.
That sounds good, but look at the full picture:


Sure, sales have turned up, but we're not back to the level of 2002, and there's nine months worth of inventory to burn through, says the NAR. (Supply of less than six months' sales is normal.) And my blogging colleague Calculated Risk, who really knows this real estate stuff, points out that first-time and foreclosure buyers are still driving sales. He winds up a home sale comment today with this caution:

Expect a surge in existing home sales (and some new home sales) over the next few months. Expect all kinds of reports that the bottom has been reached (emphasis in the original).
Expect the frenzy to end ...
CR also provides some excellent graphs in a second post.

Other central bankers in attendance at the Jackson Hole symposium were less enthusiastic. From the Financial Times:

Speaking at the same symposium, European Central Bank president Jean-Claude Trichet said that talk of economic conditions' returning to normal made him uneasy. "I am a little bit uneasy when I see that, because we have some green shoots here and there, we are already saying, 'well, after all, we are close to back to normal.'"

He said that there was still an "enormous amount of work to do and we should be as active as possible".

His comments were echoed by Stanley Fischer, governor of the Bank of Israel, who said: "We may be relaxing too soon, thinking the crisis is past when that is far from sure."