Bernanke Back in the Hot Seat
Federal Reserve Chairman Ben Bernanke is back on the hot seat Thursday.
Two days after Bernanke got a vote of confidence from the markets for the Fed's half point rate cut, he and Treasury Secretary Henry Paulson head to Capital Hill for a hearing on the mortgage mess. They appear before the House Financial Services Committee starting at 10 a.m.
Top of mind for Wall Street are the final two brokerage earnings reports for the week, expected before the bell Thursday. Goldman Sachs stock edged up 2.5% Wednesday on speculation it would blow away estimates with its report (See Golden Goldman). Bear Stearns , on the other hand, slumped 3% on worries it would show more damage than expected from the credit market turmoil.
Fast Money" interviewed Punk Ziegel analyst Dick Bove who has a sell rating on Goldman.
Bove said Goldman has $700 billion in securities on its book and the makeup and value of the securities is unclear, making it impossible to put a book value on the firm. He said brokers and some big bank stocks fell Wednesday because of concerns about the changing nature of their business models.
"The whole structure around their trading operations has changed. There are fewer instruments that are coming along that are highly profitable. There are fewer institutions like hedge funds that can trade at the level that have been traded in the past few years. So I think what you're going to see over the next couple years is a gradual working out of problem debt at Goldman Sachs and other brokerage firms," he said.
Other earnings reports are expected Thursday from FedEx, Nike and Oracle.
Was that rate cut good or bad news? Is it inflation we really have to worry about now as the dollar continues to shrink?
As soon as the stock market began to soar on rate-cut Tuesday, it was pretty clear there would be a new kind of hand wringing on Wall Street. We also know a lot of people didn't expect or want to see the Fed cut rates by so much.
Merrill Lynch's Richard Bernstein made that pretty clear in his note Wednesday: "The Fed's action seems confusing unless one makes one assumption: the Fed's models of the U.S. economy indicate that the front end of the economy is not just slowing, but is actually shutting down."
Bernstein says the "risk trade is back big time" and he recommends investors head for high quality assets.
But on the other side of the street is Citigroup's Tobias Levkovich. In his note, Levkovich said the rate cut and the Fed's comments were "meaningful salves for equities markets."
"Both the Housing Market Index and temporary employment data were warning signs that the Fed could not ignore as they threaten further deterioration in consumer spending ability. Consumer confidence does not determine stock price direction and household wealth data is still very encouraging," Levkovich wrote.
As we've said in the past, everybody, but everybody has a view on the Fed.
Here's one that could be important as we listen to Thursday's testimony. In a statement that praised the Fed's half point rate cut, Rep. Barney Frank, chairman of that House Financial Services Committee, took this stand:
"I am surprised, however, that their continued concern about inflationary risk outweighs what I believe to be growing risks to sustained growth. I hope that, in this instance, markets and consumers will pay more attention to what the FOMC did than to what it said."
It could be an interesting morning. The topic of the hearing is legislative and regulatory options for minimizing mortgage foreclosures. Consumer advocates and industry representatives will also be there to discuss ways to help homeowners avoid foreclosure.
We've had a great deal of access to former Fed Chairman Alan Greenspan at CNBC and have been able to take an incredibly personal look at a man who maintained his privacy and often withheld his opinion as chairman of the Federal Reserve.
After watching Greenspan testify for years, it was interesting to hear his thoughts on the Congressmen he was speaking before. The statement below was made about taxes and spending and aired during "Squawk Box" Monday. Bernanke may already find it feels familiar.
"On the issue of fiscal policy, people were just not listening to what I was saying. I'm not saying anything different from what I said back then. Indeed, I went through testimony after testimony with glassy-eyed congressmen and senators out there. As I said, 'we're running into a fiscal train wreck,' did they respond? No," said Greenspan, in a simulcast interview with the "Today Show's" Matt Lauer.
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