Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19
The IPO Market Is Nowhere Near a Bubble - 9th Oct 19
US Stock Markets Trade Sideways – Waiting on News/Guidance  - 9th Oct 19
Amazon Selling Fake Hard Drives - 4tb WD Blue - How to Check Your Drive is Genuine  - 9th Oct 19
Whatever Happened to Philippines Debt Slavery?  - 9th Oct 19
Gold in the Negative Real Interest Rates Environment - 9th Oct 19
The Later United States Empire - 9th Oct 19
Gold It’s All About Real Interest Rates Not the US Dollar - 8th Oct 19
A Trump Impeachment Would Cause The Stock Market To Rally - 8th Oct 19
The Benefits of Applying for Online Loans - 8th Oct 19
Is There Life Left In Cannabis - 8th Oct 19
Yield Curve Inversion Current State - 7th Oct 19
Silver Is Cheap – And Getting Cheaper - 7th Oct 19
Stock Market Back to Neutral - 7th Oct 19
Free Market Capitalism: Laughably Predictable - 7th Oct 19
Four Fundamental Reasons to Buy Gold and Silver - 7th Oct 19
Gold and Silver Taking a Breather - 7th Oct 19
Check Engine Warning Light ECU Dealer Diagnostic Cost - Land Rover Discovery Sport - 6th Oct 19
Natural Gas Reloads For Another Price Rally - 6th Oct 19
Understanding and Purchasing different types of Plastic Building Materials Online - 6th Oct 19
Craig Hemke: Ignore the Elliott Wave “Buffoons” Calling for a Gold Crash - 6th Oct 19
Stock Market 6 Month Trend Forecast Conclusion - Video - 6th Oct 19
The True Causes Behind the Yield Curve Inversion and Gold - 5th Oct 19
Strategies on how to be a Successful CFD Trader - 5th Oct 19
Gold Stocks Correction Underway - 5th Oct 19
Climate Change When the Levee Breaks - 5th Oct 19
Federal Reserve Bank ‘Guarantees’ Dow Will Not Sink Below 26k - 5th Oct 19
The Russell and Transportation Tell A Completely Different Stock Market Story - 4th Oct 19
Confidence Drives the Economy and Trump’s Trade War Is Killing It - 4th Oct 19
ADL Predicts Crude Oil Prices Will Fall Below $40 - 4th Oct 19
Investing Money? Why You Need a Reputable Accountant - 4th Oct 19
Stumbling Manufacturing and Rising Gold – Now or Later? - 4th Oct 19
Silver Eyes Fourth Quarter Rebound - 4th Oct 19
Gold Price Forecast to Exceed $10,000/Ounce - 3rd Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Bernanke's Conundrum and the Investment Opportunities It Creates

Stock-Markets / Investing 2009 Apr 18, 2009 - 07:41 PM GMT

By: Money_Morning

Stock-Markets Best Financial Markets Analysis ArticleGood morning!

As I head to China, I'm struck by the irony of Bernanke's continued assurances this week that he'll head off inflation by selling assets and shrinking the monetary supply when the time comes. Not because I don't believe that he'll try - he will - but because I don't think he can.

Here's why:
1. Bailout Ben, Turbo Tim and a whole host of other characters in the current and preceding several administrations completely missed the credit crisis in formation. Worse, they insisted until the very end that the economy was doing just fine when it wasn't. How are "they" now miraculously going to judge that the economy is in recovery and when will they do it?

Like Greenspan who finally admitted under great pressure (and well after the fact) that he had several flaws in a lifetime of economic thinking, Bernanke risks doing too little too late. Or, too much, too early. If he waits and keeps rates too low too long he risks a repeat of Big Al Greenspan's legacy. If he jacks up rates too soon, he kills the recovery and goes down in history as the guy that cratered the world's recovery. I don't envy him either way.

2. By injecting trillions of dollars into the markets to prop up functionally insolvent companies, the Fed is making matters far worse instead of better. Not only that, but somebody is going to have to pay all of that back and, sadly, that burden will fall to taxpayers, many of whom have actually been responsible with their money.

The Fed, now fully ensnared in this mess, can no more raise rates to cope with inflation when it hits than a drug dealer can give up crack. Think of this as the mother of all adjustable rate mortgages. If the Fed raises rates, it increases the costs of refinancing all of this nonsense. If it doesn't, it risks the unthinkable...a devaluation of the US dollar. I hope we all don't become Zimbabwe trillionaires in the process!

3. Bernanke has stated that he intends to sell assets as part of his plan to reduce the monetary supply and clean house a bit. That's great when you're buying stuff that's freely available on the open markets like treasuries or the US dollar, but nearly hopeless when you're buying trash like toxic debt that nobody else wants like the Fed is now. It'd be one thing if the Fed was bidding against other market participants, but let's not forget Team Fed is playing risk taker of last resort because the best investment banks in the business couldn't sell the stuff Washington is buying. Which is, of course, why many are destined to be out of business.
So where does that leave us?

Ironically, inasmuch as Bernanke's got his own version of Greenspan's "conundrum" on his hands, the Fed's liquidity program will probably create its fair share of unanticipated opportunities.

Of the many I'm watching right now, two, in particular, stand out as having the potential to help investors rescue their portfolios and get back on track:

1. History suggests that cash rich, low debt companies dealing in real products stand to weather the storm best and lead the way out of this mess, particularly where commodities, agricultural products and infrastructure are concerned. Moreover, if we haven't hit the bottom yet, history shows they're less prone to fall or simply not likely to fall as much. So this is good...upside plus stability.

2. Income investments tend to outperform other choices throughout a recession but also tend to recover faster than their non-dividend paying brethren when the smoke clears. The trick is knowing which companies really are worth the cash and not the trash. Energy MLPs are particularly compelling right now as are several choices in the - gulp - junk bond market. Both stand to benefit not only from the misguided stimulus plans now in play, but also legitimately from the recovery when it finally starts in earnest. My colleague Martin Hutchinson has several great plays he's working on too-and you can hear the details, as well as his thoughts on the shocking "yield gap" in a free video presentation he's giving on Tuesday April 21. Don't miss it.

Best regards,

Editor's Note: How Can You Get Paid to be in the Markets?

Permanent Wealth Investor Martin Hutchinson - who was just nominated for Business Journalist of the Year - is telling you exactly how you can make steady cash while waiting for the market to recover. This and more will be revealed in our latest *free* Video Report: "The Shocking New Yield Gap...and What It Means to Your Wealth." Sign up now to make sure you don't miss this valuable information.

Money Morning/The Money Map Report

©2009 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules