More Background Noise From Ben Bernanke

Yesterday we wondered whether Federal Reserve Chairman Ben Bernanke, in his speech to Congress, would come out in support of his colleagues (and the banks) or whether he’d speak with one eye on his legacy. Turns out he’s managed to do both!

We’re not going to dwell too much on Bernanke’s remarks today. After all, there’s the collapse of Australia’s mining boom to reckon with.

But given his utterances determine the ‘wealth’ of investors around the world, it’s worth looking at just what he said. If the Federal Reserves job is to inspire confidence, and confidence creates liquidity, then Ben Bernanke’s speech last night didn’t do the job.

As you can see in the one-day chart of the S&P500 below, it sold off soon after the market digested his prepared comments, which the Federal Reserve released at 10am. That market analysis has come to dissecting the words of a central planner to gauge the stock market’s reaction just goes to show how broken our system of finance is. It is sad and embarrassing. Not for Bernanke though.

S&P500 — Not Happy With Bernanke
 

His prepared remarks really were laughable when you read and have a good think about them. To paraphrase, here’s what he said:

‘Ultra-low interest rates are not good for an economy. More normal interest rate levels signify a healthy economy. Our aim to is to get the economy healthy and return interest rates to more normal levels. In order to do that we need to keep interest rates really low for a really long time.’

Really, that’s what he said. You can read the long version here if you like.

No wonder the market is losing confidence. Bernanke is trying to give the impression he’s concerned about the destabilising effects of low interest rates (legacy protection) while also trying to tell the market that low interest rates will be around for years.

Bernanke’s outta here in January 2014. He knows he’s leaving a ticking bomb for his successor…after all, Greenspan did it to him in 2006. Who will the successor be? If the banks have any say in it, we’ll be looking at Lawrence Summers or Tim Geithner. Janet Yellen, the Federal Reserves current Vice-Chairman, is the favourite, but there may be a surprise.

One things for sure, it won’t be an interest rate ‘hawk’. So whatever noises Ben Bernanke makes about ‘tapering’ or returning interest rates to normal is just that…noise.

Regards,
Greg Canavan
for Markets and Money

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From the Archives…

Multinationals vs. the Nation State
17-05-13 – Sam Volkering

The Federal Reserve Will Panic and Climb Even Higher
16-05-13 – Bill Bonner

Survival of the Most Capital Efficient
15-05-13 ­– Dan Denning

New Australian Home Buyers Aren’t Convinced
14-05-13 – Dan Denning

What Happens When Everyone in the World has Zero Interest Rates?
13-05-13 – Dan Denning


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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