Ben Bernanke… What a Fraud… What a Phoney

Markets up, gold up. It’s been a while since that’s happened.

It’s all thanks to Fed Chairman Ben Bernanke of course. Last night he told the markets what they really wanted to hear. It was good old dovish Ben. The boss man came out and delivered a speech that wiped the floor with the Fed hawks…the ones that have recently expressed concern over the size and pace of the central bank’s monetisation program.

Here’s the key paragraph from Bernanke’s speech, with our emphasis on the key sentence:

‘Another potential cost that the Committee takes very seriously is the possibility that very low interest rates, if maintained for a considerable time, could impair financial stability. For example, portfolio managers dissatisfied with low returns may “reach for yield” by taking on more credit risk, duration risk, or leverage.

‘On the other hand, some risk-taking such as when an entrepreneur takes out a loan to start a new business or an existing firm expands capacity is a necessary element of a healthy economic recovery. Moreover, although accommodative monetary policies may increase certain types of risk-taking, in the present circumstances they also serve in some ways to reduce risk in the system, most importantly by strengthening the overall economy, but also by encouraging firms to rely more on longer-term funding, and by reducing debt service costs for households and businesses.

‘In any case, the Federal Reserve is responding actively to financial stability concerns through substantially expanded monitoring of emerging risks in the financial system, an approach to the supervision of financial firms that takes a more systemic perspective, and the ongoing implementation of reforms to make the financial system more transparent and resilient.

‘Although a long period of low rates could encourage excessive risk-taking, and continued close attention to such developments is certainly warranted, to this point we do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery and more-rapid job creation.’

And there you have it. ‘We’re sort of concerned that things could get out of control, but we’re not really. We don’t see any problems, so we’re not going to take away the punchbowl. Party on, hedge fund dudes!’

We’re tired of this monotonous focus on the world’s most powerful central banker. The lack of accountability in the role is enormous. He thinks he can wait for ‘signs’ of excessive risk-taking before doing anything about it. He thinks he has the ‘tools’ to shrink the Fed’s balance sheet and get things back to normal when the time is right.

But his track record on responding to ‘signs’ is abysmal. He didn’t see a housing bubble even though he helped inflate it. He even went on record as saying there was no housing bubble.

Well there was one…it burst and went on to change the course of economic history, throwing thousands of people into misery. Of course, his predecessor, ‘Sir’ Alan Greenspan was just as responsible. Yet here he is swanning around the world, earning millions and claiming some special insight into how the world works. What a fraud and a phony…

But the joke’s on us. We really are a dumb and sorry bunch. And one day in the not too distant future, we’re all going to pay big time for letting these psychopaths run the place.

So thank you, Ben, for coming down from the mountain to speak with us and impart your divine wisdom…

Greg Canavan
for Markets and Money

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From the Archives…

High Tide on Main Street?
22-02-13 – Bill Bonner

The Fed’s Funny Money is Losing its Mojo
21-02-13 – Dan Denning

Resurrecting BHP, the ‘Big Australian’
20-02-13 – Dan Denning

End of the Australian Boom?
19-02-13 – Satyajit Das

Bond Guru Still Likes the Unthinkable: US Treasuries
18-02-13 – Chris Mayer

Greg Canavan is a Contributing Editor at Markets & Money and Head of Research at Port Phillip Publishing. He advocates a counter-intuitive investment philosophy based on the old adage that ‘ignorance is bliss’. Greg says that investing in the ‘Information Age’ means you now have all the information you need. But is it really useful? Much of it is noise, and serves to confuse rather than inform investors. And, through the process of confirmation bias, you tend to sift the information that you agree with. As a result, you reinforce your biases. This gives you the impression that you know what is going on. But really, you don’t know. No one does. The world is far too complex to understand. When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases. Greg puts this philosophy into action as the Editor of Crisis & Opportunity. He sees opportunities in crises. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines charting analysis with more conventional valuation analysis. Charting is important because it contains no opinions or emotions. Combine that with traditional stock analysis, and you have a robust stock selection strategy. With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the same mistakes that most private investors do every time they buy a stock. To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Markets & Money here. And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here. Official websites and financial e-letters Greg writes for:


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