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Alternate Title: “As the Bernanke Twists”
You have to take several steps back and look at the big picture here. Stocks are still in a secular bear market that began back in 2000 with the end of an egregious bubble in stock speculation. Long-term secular bears, especially of this magnitude, tend to last at least 13 years, and can last as long as 20. If you know your history, then you know we had not seen anything quite like the dot-com bubble since the “Roaring Twenties,” culminating with the 1929 crash and subsequent Great Depression. Back in the early 1930’s, the stock market fell well, well below those 1929 crash lows for a variety of reasons.
This time around, we have somewhat followed the path of the 1930’s, but not quite. We have seen much easier monetary policies which supposedly have helped stock prices not completely collapse roughly 90% like in the 1930’s, although the debt and deflationary issues do, in fact, “rhyme” with that period in history. With each major and seemingly minor move that Ben Bernanke makes at the Federal Reserve, he is fighting a battle with the intricate knowledge he has of the 1930’s. His critics argue that he is living in the past and looking at the wrong issues, since liquidity is not the problem but rather solvency.
Either way, if you are a stock trader then you have to accept this for what it is–The man is waging war on a battlefield of a fight that took place 80 years ago, and we are all being dragged out, forced to fight in our uniforms and bayonets against an enemy that may or may not be a phantasm. Monetary policy is, and will remain, easy for quite some time. Bernanke’s latest gambit of “Operation Twist” coincided with the October 4th stock market bottom, with those lows holding firmly since then. Plenty of people saw Bernanke as playing hardball, but the market did not seem to mind.
When you take all of this into account, if you are a bear pointing to the weak fundamentals of the U.S. and global economies to support your case of lower stock prices, you are doing yourself a disservice by discounting Bernanke’s unwavering conviction to fight the demons of the 1930’s. Whether the two periods in time are truly similar is academic at this point, since the man with the power has given his answer to that question time and time again. The only issue for me is just how much “power” over the markets Bernanke actually has. With this latest twist in the saga, though, it is tough not to say that he is still calling many of the shots.
True dat, Chess. Good article. At least for now, the Bernanke rules.
Top flight chess, thanks for this one.