Recently, we have stopped being as critical of Ben Bernanke. This is primarily because he had the political spine to raise the Discount Rate. This is progress, however, this doesn’t mean that we underwrite (or understand) what he talks about real-time. He’s testifying in front of Congress right now – here are my thoughts:
After being chastised by Ron Paul, then supported by Barney “The Republicans Did It” Frank, Ben Bernanke has started to do what the politicians who were paid off to keep him in his seat expect him to do – pander to the political wind of keeping the Fed Funds rate at zero for an “exceptional and extended” period of time.
That, of course, is either a Japanese or unreasonable monetary policy to uphold in perpetuity. I am ok with neither. Nor should you be. The outcome of zero percent returns on your nest egg of savings is implied – its zero – and the output of carry trading on asset prices with easy money is also implied – its inflationary.
Fortunately, Bernanke pandering like this was proactively predictable. This is why we took our allocation to US Equities from 3% to 9% in the last two days of US stock market weakness.
To be clear however, sad is as sad does. I will be the first to admit it, even though we are getting paid by it today. Bernanke is completely politicized and will continue to sponsor a stock market that can rally to lower-highs on easy money speculation.
I suppose that a short term risk management model for America’s manic stock market is what he means by “Macro-Prudential.” He can’t be serious in telling us that this is a long term macro risk management plan.
My immediate term resistance line for the SP500 is now 1120. Ride the Bubble in US Politics while you can. This is like riding a bull - 8 second rallies can be fun in the short term – then one day, the bull runs you right over.
Keith R. McCullough
Chief Executive Officer