SliderOnTheBlack.com

What a week for the markets. It all started when Ben Bernanke broke tradition and talked up the U.S. Dollar, a job usually reserved for the Treasury Secretary…

“We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations. The Fed’s commitment to price stability and maximum employment will be key factors ensuring that the dollar remains a strong and stable currency.” - Ben Bernanke

The Dollar rallied, and both oil and gold sold off. But then, the ECB’s Jean Claude Trichet entered stage left with these comments:

“After having carefully examined the situation, we could decide to move our rates a small amount in our next meeting in order to secure the solid anchoring of inflation expectations. I don’t say it’s certain. I say it’s possible. We had a number of us thinking that all taken into account, all information, analysis of risks, we had a case for increasing rates. A number of us considered that there was a case for increasing rates, but later some amongst us considered there was not necessarily that case.”

And with even greater clarity than Trichet’s heads up to the market, were Bundesbank chief Axel Weber’s more direct comments of:

“The ECB is not split, we have sent a clear message to the markets about what to expect in the near future, we have to let deeds follow words.”

With both Trichet and Weber trumping Bernanke’s bluff, the market called…

The US Dollar tanked, giving back all its gains, and the Dow collapsed nearly 400 points. Gold popped $30, and oil exploded, soaring to new highs, up $16 and +13% in just two trading days.

Call it what it is… a run on the US Dollar, and a market short on Ben Bernanke.

The market just called out Ben Bernanke, Hank Paulson, and the “Uncle Hanky Panky - Bernanke Buck.”

No more strong dollar talk, it’s time to walk the walk.

And why shouldn’t the market call out Bernanke, Paulson, and the Dollar?

The Fed just pumped another $75 billion into the banking system this week, in exchange for illiquid, subslime mortgage paper. The Fed’s auction facilities have now pumped $550 billion dollars into the banking system. Add in another $150 billion dollars from the stimulus package… 7 Fed rate cuts, totaling 3.25%, which have created an interest rate differential between the 2 Year U.S. Treasury, and the 2 Year German Bund, of nearly 2.25%…. and that rate differential, plus Trichet’s comments this week, puts a very strong fundamental bid under the Euro vs. the Dollar.

Ben Bernanke has now found himself trapped between a rock, and a political hard place. Raise rates, to stop the run on the dollar, and cap inflation… and potentially accelerate the collapse of housing, sink the stock market, and deepen the US recession.

Or do nothing, and the vigilantes will run oil, gold, commodities, and bond yields ever skyward, and the US Dollar will sink to new lows, and inflation will soar.

Good bye academia, and hello real world.

Given the timing of Trichet and Axel Weber’s comments, coming right after Bernanke’s bluff, you’d almost think that Bernanke was waffling on prior commitments to the G-7?

Why else would the ECB knee-cap Bernanke like that? Especially given the Dollar’s 4% bounce off it’s April 22nd low vs. the Euro, and the comments by OPEC President Chakib Khelil, who was quoted by Bloomberg saying that - “there may be an understanding between the European Central Bank and the U.S. Federal Reserve, to support the dollar.

What just happened to that “understanding” and their support of the dollar?

It looks like the ECB grew tired of Bernanke and Paulson’s all talk, and no walk, strong dollar rhetoric, and decided to take inflation matters into their own hands.

The ECB is also open, and honest, regarding the growth of money supply in the Euro zone. Contrast these comments below from the ECB, to the Fed’s elimination of M3 reporting, and Bernanke’s infamous doublespeak response to Ron Paul about ramping US money supply:

“The monetary analysis confirms the prevailing upside risks to price stability at medium to longer term horizons. Annual M3 growth remains very vigorous in April (+10.3% ), supported by continued strong growth of loans to the private sector.” -Jean Claude Trichet

Former Fed Governor Wayne Angel was once asked how a Fed governor, or a Fed chairman would know if he had done a good job? His answer, was that he would know he had done a good job, if the price of gold was lower when he left, than it was when he had started.

Here is Ben Bernanke’s report card since becoming the Fed Chairman:

Gold is up +58%, Oil has more than doubled, up +112%, the CRB is up +27%, and the US Dollar has collapsed nearly -20% since Ben Bernanke took over the US Fed.

So far, I’d say that Mr. Bernanke has earned a solid “F” on his report card as the Fed Chairman…what say you?

– SliderOnTheBlack