I read that there is a Bernanke effect. He is speaking at Jackson Hole on Friday and many expect him, just like last year, to announce a new QE or some other "trick up his sleeve." I actually read someone's post today about how wonderful Bernanke is and how effective his QEs have been - seriously, I am not making this up. After noting a prediction of Ben pulling another stimulus out of his hat, the writer noted:
"The past QEs have been so darn effective! We had one of the biggest market rallies in history from March 2009 to March 2011. It's so powerful, why not use it?"
I kid you not, this is what the guy posted and while I initially thought he was being sarcastic (a concept my seven year old daughter gets), he was not in the least. This guy really believes that helicopter Ben is the next Messiah. He refers to Ben as the guy who saved us from the worst depression in history and calls him a "hero." And he apparently does not notice the coincidence between the market being oversold and down around 50% in March 2009 and then recovering somewhat, whether Ben did anything or not. I am not making this stuff up about what this guy says. He must be Ben's son or cousin or publicist or something. Don't believe me, read it for yourself:
http://seekingalpha.com/article/289499-bernanke-is-loading-his-gun
Now I believe this guy is sincere, but I also believe he has not done his math. Sure, Ben dropping money will help the market for a while but if you look the market is not significantly better than when QE2 was enacted, and it just ended a month ago. There are no discernible long term benefits from either QE. They did not solve or fix debt problems, they just provided short term liquidity. We still have a debt problem. It may turn into a liquidity problem as banks in the US and Europe soon have to struggle to survive, but it is now a debt problem (at least for the US) and QE does nothing to fix this. So Ben the hero - I think not!
Let me add a caveat here. Ben's largess supported banks in the EU as much as in the US. Governments there do not guarantee deposits like the FDIC does here. Greek banks have been having a run of people taking out their money and the concept of other banks seeing similar fate is not too far removed. If this happens, there could be liquidity issues as these banks do not have funds on hand to pay their customers back their deposits. Morgan Stanley had a similar problem in 2008. It had folks asking for cash back that it did not have on hand. It ended up borrowing over $100 billion from the Fed to fund this problem - more than even Citigroup, which is twice its size. Of course it noted this borrowing to its investors (not). So the Fed does address liquidity problems. These are problems that have and will continue to plague our financial institutions for years to come. Other than saving their collective arses and preventing a meltdown, this does not revive the economy. It simply allows a very debt ridden status quo to continue. Time to pop the corks and celebrate - not!
So I ask again, what has changed? Nothing in my book. PIIGS are still about to be slaughtered, housing in the US still is sucking wind, unemployment not better, etc. etc. So where do YOU think the markets are going in the next 12 months? Prepare yourself.
Something Fun To Do
Here is a fun suggestion I have for you. Next time your employer - assuming you have one - wants to have financial advisers come in to talk to you, do a little homework in advance. My company's retirement benefits are with Merrill Lynch, which had to be bought by Bank of America to survive, and we all know that Bank of America, after its CountryWide, purchase is doing so swimmingly well. Two years ago they had financial advisers from Merrill come in to tell me how to do my investments. I was not real happy to have a company that cannot survive financially tell me how to do so. My bank, where I have an adviser, is a subsidiary of RBS, which last I checked was down around 40% or so this past couple of months. Again, where are you getting your advice?
Point is, these people cannot keep their companies alive and they are telling you how to invest your money. So research your adviser and feel free to ask during the investment meeting questions like "Your parent's stock is down over 40% in the past two months and has serious sovereign EU exposure, so why should I follow your advice?" Not saying their advice is wrong, just play with them a bit and take their advice with a grain of salt. They do not know everything and you need to do your own homework.
Disclosures: None.
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