Ben Bernanke is turning into the most politicized Chief that the US Federal Reserve has ever had. Given the history of the US central bank, that’s saying a lot.
As I type this note, Bernanke is speaking at the Economics Club of New York. It seems to be a lovely affair of world class group-thinking. In his prepared remarks, Bernanke explained away a -16% crash in the price of the US Currency the same way that his political friends in Washington have asked him to.
Summers/Geithner political playbook: First, establish that the US Dollar was the “safe haven” of choice during last year’s stock market crash. Then, suggest that all we are seeing is a controlled unwind of that “safe haven” global asset allocation.
There are 3 glaring problems with this view:
- This political party line is inaccurate
- The Chinese and Japanese disagree
- It implies that the only way to strengthen the dollar is to crash the stock market
From a trust building perspective for a currency, this lacks credibility to the core. As a result, the Buck continues to Burn. And everything priced in bucks continues to REFLATE.
In the chart below, Matt Hedrick and I show the visual representation of our view versus that of Mr. Bernanke. This chart of GLD (the gold ETF) is marked-to-market. Bernanke’s political stardom is marked by compromise and constrain.
I am selling half of the 7% position in Gold (GLD) that we have in the Asset Allocation Model today. While it may be cozy for Bernanke to buddy up with his banker friends who are in bonus season in NYC, his boss will be in not so friendly Chinese confines tonight. President Obama, be prepared to be laughed at if you dismiss the Burning Buck like Bernanke just did.
The long term fears associated with a US Dollar Credibility Crisis are very well placed. For the immediate term TRADE, they may be peaking right here, right now. The US Dollar is hitting new YTD lows.
I can’t think of a Fed Chairman more equipped to have delivered the message of a pandering politician. Thanks for the Gold price, Benny.
Keith R. McCullough
Chief Executive Officer