Wikinvest Wire

Bernanke defends his record

Thursday, December 03, 2009

My trusty Tivo has about an hour-and-a-half head start on me but, unlike NFL games, it's hard to make up that gap by zipping through huddles and commercials.

They are now well into the Question & Answer portion of Fed chief Ben Bernanke's confirmation hearings (you can watch the live stream on CSPAN-3) and, so far, the headlines that it has generated seem pretty tame:

Yves at Naked Capitalism raised the following point about the impact on capital markets if Bernanke is not reappointed, one that few seem to have considered and what may make his confirmation all but inevitable despite some uncertainty.
1. As with the TARP, the threat is that if action is not taken, the markets will go to hell. With the TARP, the markets went to hell after its passage anyhow. If the markets are significantly misvalued as some feel (Roubini, John Hussman, to name a few), they will correct. If confirming or not confirming Bernanke is part of this dynamic, all it will affect is the timing, not the outcome.

2. This notion of Bernanke being “critical” further suggests that Wall Street believes or knows he has and will manipulate markets on their behalf. Of course, Bernanke did so in an explicit way with the $1 trillion Treasury/Agency market intervention that started in March and is tailing off now. And of course, there has been the raft of special facilities, but those are supposedly being wound down now. Has there been even more, as some have charged, than what has been made public?
It should come as no surprise that in this Rasmussen poll that found dwindling support for the Fed chief by the population at large, those who classify themselves as "investors" support a second term for Bernanke by more than two-to-one over "non-investors."

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Anonymous said...

Financials were 40% of S&P profits at the peak. It was all an illusion. That is, financials were not actually producing useful goods, just charging exorbitant fees for facilitating foolish foreign loans to domestic spendthrifts.

Without this illusion of profit, the P/E ratio went to over 100 to 1 recently. The dividend yield is 2%, only half its historic norm. The market is taking decades to revert to its historic norm after the Y2K bubble.

Slowing down this reversion to the mean is not doing the economy any favors. Its just redistribution from the majority to the minority to subsidize absurd valuations. Sort of like what is happening with McMansions in CA et al. Texans are being robbed to keep CA home prices high. Everyone is being robbed to keep S&P prices high.

All of this came about because constant inflation prevented citizens from saving in the bank/bonds. They flocked to inflation hedges as their retirement program, and the inflation hedges turned into bubbles that popped.

End inflation forever to prevent this recurrence. People can then save for their future in a safer way. The average person is just not good at picking inflation hedges.

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