A little belated analysis of the recent article in the Atlantic.
I find it amusing that I seem to be the only person who doesn’t dislike Bernanke.
Let me first list the reasons.
1. Rates stayed low (and some who bet against it had acknowledge their mistake – e.g. Bill Gross), which led to the monthly payments on my arm mortgage to stay ridiculously low.
2. My stock portfolio has performed well for the last 2 years, because I knew Bernanke is not going to raise rates if not forever then for a long time. Which by the way is what made me survive the last summer debacle. It wasn’t hard to infer that investors had nowhere else to go. I was right – the stock market rallied back and more. And he wasn’t cryptic about it as Greenspan was – the message he was sending at numerous public testimonies wasn’t hard to decipher. And by the way, no one was complaining when Greenspan held the rates low for years. Everybody welcomed it – mostly the same people who are now complaining about Bernanke doing the same thing.
3. Those who trash him on the right, bankers, hedge-funders choose to forget that he lend them free money for taking their toxic shit as collateral. He saved you. The Fed was the lender of last resort to these guys. I’d rather you said thank you and went on your way.
4. For inflation to increase people first have to have money to spend. With unemployment such as it is and with reduced wages it’s hard for me to see how this will happen in the nearest years. Inflation under Bernanke tenure averages at 2.4% – lower than under any Fed Chairman since Vietnam War.
5. Congress is not supposed to make monetary policy – Fed is. Nonetheless, Republican congress tried to do just that in unprecedented move last year. Amazing how nowadays they try to insert themselves in matters beyond their expertise.
6. There’s a lot of money in the system which gives the doomsayers a hammer in the debates. But that money is not being circulated – it is sitting on banks and corporations balance sheets as cash on hand. If they start to spend it – hiring people, paying them salaries, investing into infrastructure – then it will be time to start worry about inflation. Until then – I doubt it.
7. “Some people don’t understand—fulfilling the responsibility as lender of last resort is what the Fed was created to do. This is what central banks have been doing for 300 years.” Ben Bernanke
8. Hawks have been fearing inflation since 2008 when Bernanke first started to cut rates, and they are still waiting.
9. According to Milton Friedman the Fed’s failure in the 1930s was a matter of not printing enough money.
I’m not an expert on equities and I apply a hatchet rather than a scalpel analysis. It’s amazing how smart people tend to overanalyze the situation. You hear people say, “sure Bernanke will probably keep the rates low” (which would be bullish for stocks), “but look at the Baltic dry index” (this is the index that measures dry goods shipments around the world and has collapsed since last fall), as if the two factors can be commensurate in their impact on stocks. I do not deny that in some situations it is appropriate to see what some obscure indexes are doing, but I think there are way too many analysts employed on the street who are paid to have opinions that don’t matter. When you’re paid to have an opinion you tend to frown upon using simplistic axioms (like buy when everyone is afraid, sell when everyone is greedy) because then your usefulness and employment would be in question, but try to look for fancy obscure correlations to impress your boss or your readers. Remember how last August, during the debt-ceiling debacle everyone was rushing to declare the upcoming double dip recession. Few voices who reasoned that the crisis was completely self-made have been drowned in the mass hysteria. It was indeed rather scary and I had to convince some of my despondent friends to hold on, but this is when those with a long-term view are coming in to buy. But analysts, like traders, seem to only care about the short-term.
Bernanke (and his low rates) plus trillions of cash sitting on the sidelines (with nowhere to go but stocks) – are the two major things that I always kept in mind in the gyrating market and got me through the ups and downs for the last 2 years. There’s simply no counterweight big enough to compensate for these two factors. So every time some talking head on TV comes up with another measurement of upcoming apocalypse he’s either engaging in wishful thinking (there’s a whole class of people these days wanting for the market to go down), or he’s trying to justify his employment, collecting weird obscure parallels. My thinking about stocks now is summed up by portfolio manager Barton Biggs who’s been bullish and remains bullish: “There is an awful lot of money that is out of stocks and in very low- yielding fixed-income instruments. I think the odds are that money is going to migrate back.” There will no doubt be a time for apocalypse, but it’s not now. And I have nothing but praise for Bernanke.