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The move came as no surprise, as many folks had considered Bernanke to be the frontrunner for the job. No doubt George Bush was also happy that the market seemed to accept his choice pretty comfortably – blessed relief in the wake of the Harriet Miers Supreme Court fiasco.

So how will this appointment affect the market?

Well, first of all, it means we may well see a specific inflation target sometime in the future – something Bernanke is said to favor.

I personally think this is a good idea. It’s something the Bank of England does and it helps to provide direction and stability to the market. It would sure beat the flap over inflation we have at the moment. It’s tough to tell what's on the Fed bankers’ minds half the time anyway, so this move would at least provide some clarity.

But in the short-term, I think you can expect to see a large dollop of the status quo. For those who pull the monetary strings, their decisions nearly always seem to tread a fine line between making the financial world folks happy or sour. But to say that they are in “control” of the market would be to undermine a greater force of nature: Investor psychology, which is a far bigger beast. Sure, they can influence things, but not to the extent that some people say.

For me, one thing sticks out in my mind about Bernanke: His famous speech back in November 2002 on the perils of deflation (falling prices), in which he reminded people that the US has a machine called a printing press and that the Fed could simply print more money to combat it. This would have essentially given the dollar a darn good beating. Was he serious? Who knows? But the fact that it crept into his speech says something for the man and his persona. Here’s a guy who’s not afraid to ruffle a few feathers – and that little nugget sure did have folks talking for a very long time!

DO I HEAR 3.5%?

Just one day after Bernanke got the call, a Reuters poll of economists found that US third quarter GDP growth will hit 3.5%, despite the recent hurricanes.

In addition, a report from the National Association for Business Economics (NABE) says that while these are testing times, many businesses are still faring pretty well. The main reason for that? They’re successfully managing to filter higher costs down to poor saps like you and me!

Of 101 companies surveyed, 40% raised their prices during the third quarter, with just 2% cutting prices. The 38-point difference was the second highest since the group started collected such data back in 1981. In the fourth quarter the number of firms expected to push up their prices is set to rise to 46%.

But while companies are able to pass higher costs along to consumers, the NABE survey also found that the percentage of companies planning to take on new staff dropped sharply from 42% in July to just 29% today.

THE WONDER OF WOOD

So with a plethora of higher costs these days, what are American consumers doing to combat the pressure?

Chop, chop – a growing number are turning back to the warmth of wood this winter.

A CNN report quotes the Hearth, Patio & Barbecue Association (yes, there really is an association for that!) as saying that wood and pellet stove sales are enjoying a marked increase. And why not? The government forecasts a whopping 60% jump in heating costs in some regions of the US this winter.

Home Depot and Lowe’s are reporting brisk sales of alternative heating methods. You can apparently buy a wood-burning stove for US$2,000 and eventually realize the savings, as firewood to last you six months sells for as little as US$120.

The drawbacks? You’d need to live in a house, not an apartment or condo, since wood-burning stoves require lots of open space and good ventilation. Regular cleaning is also necessary in order to avoid chimney fires.

But who minds that when you can see some excellent savings and get back to the Old Country feeling when folks gathered around the fire and told stories. I guess these days we just congregate to watch cable TV!

Speaking of TV, I’m sure there’s some football on right now, so I’ll sign off for now. Talk to you again soon.

Martin Denholm

Executive Editor, Taipan

MMM

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