Bernanke's op-ed
November 05, 2010
– Comments (10)
Bernanke's op-ed in Washington post was usual boring stuff, but one part of it is very important. For the first time ever, the Printing Press chief mentioned inflating a stock bubble as an important goal.
Thus spoke Zaratrhustra:
"And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. "
This amazing statement provokes several contradictory mental reactions at once.
1. Bernanke is dead wrong because most of the $15 Trillion of equities are owned by people who don't want any consumer goods because they already have everything and the only thing they do want is just more money. And although some equities are also owned by the public through 401K plans, these plans are not considered by people as real money because the first 401K distribution is typically years away and because market gyrations have taught people that such gains can be very fleeting. So don't expect the stock bubble to produce much extra spending.
2. This is a very sudden change of course on Bernanke's part. Until now, equity speculators got about as much attention from the Fed as houseflies.
3. In one sense it restores justice. I am sick and tired of discrimination we stock speculators have to endure when all the funny money goes to other speculators.
4. At the same time it tramples the asset-less lower classes deeper into the ground. At valuations targeted by Bernanke, stocks lose their ability to lift the small retail investor out of poverty, and in fact, acquire a dangerous tendency to wipe out rookie investors during occasional sell-offs as we witnessed quite recently.
5. What caused this sudden change of heart? Does Bernanke play golf with some bankers whose interests have now changed from bearish to bullish, or was it just honest, sincere stupidity?
6. Savers will be happy to watch the risk-taking types zoom by, earning 20% a year from Bernanke's generosity. Talk about the mother of all moral hazards.
7. Fighting unemployment by boosting stock portfolios of the people who are also unemployed but for the opposite reason is asinine.
8. Is it safe to rely on Bernanke's put? Probably not. Speculators's interests have not gone anywhere and they still need flash crashes as well as flash spikes.
9. The most important question is, will it succeed? I still think it will be hard to take the market above 1400 because when earnings disappear, people may not want to buy the stock even with free money. Even today valuations of many companies make me wonder what kind of s..head is buying them. But the risk of a nasty upside surprise (S&P 1550? 1800? 2100? 5000???) is increasing.
10. I must revise my forecasts slightly upward. Instead of reaching 1400 and crashing, we might see 1350-1500 as the new normal, if Bernanke gets serious about supporting this bubble.
11. Investing has just become more difficult.
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