Tuesday, January 26, 2010

Helicopter Ben Survives: The Implications

Reports now show that "Helicopter" Ben Bernanke will indeed survive and be appointed to a second-term.
The derisive term "Helicopter" refers to a statement the FED chairman once made when asked about the options available for preventing a systemic financial collapse.  In the statement, Bernanke said that the FED could even go so far as to consider "throwing money out of Helicopters" to get cash into people's hands.

Clearly, the statement was somewhat tongue-in-cheek, as no one actually believes that The FED would resort to such an idiotic policy.  However, the fact that Mr, Bernanke implied that he would go to extremes to get funds into consumers' hands is quite telling as to his modus operandi.

Bernanke, an academic, fancies himself a student of the "Great Depression" and believes that the lessons learned from the monetary mismanagement THEN can be applied to the situation TODAY to minimize the effects of the ongoing finacial calamity.  Unfortunately, Mr. Bernanke is not a student of FED policy and efficacy from 1987 through the present.

His mentor, Alan Greenspan, employed a "low interest rate" policy which fed a series of asset bubbles only to followed by devastating crashes.  The first bubble, the dot com boom and bust, popped in 2000 and was followed by an 80% drop in the Nasdaq -  wiping out a class of investors, creating a slew of corporate bankrupties and setting the stage for a recession.

Mr. Bernanke should really take a look at his OWN role is this utterly absurd policy as he was highly responsible for bubble number two:  the real estate bubble, which along with the derivatives mess led to a virual financial system collapse in 2008.  Perhaps someone can buy him a book on recent Federal Reserve history!

In any event, it is HIGHLY unlikely that "Helicopter Ben" will make the connection between below-market interest rates and the subsequent mis-allocation of resources which leads to the bubbles in the first place.

Thank God Bernanke isn't a dentist.  If he was one, he'd fill one cavity, only to "accidentally" cause two new cavities.  "What, me worry?"

The FED and Mr. Bernanke are no more the solutions to what ails us, than a tanker full of gasoline would be in putting out a raging inferno!

Now, the stage is re-set for a continued and misguided policy of below-market interest rates which will lead to hyper-inflation and be followed by the inevitalbe second dip into Depression.

My trading recommendations made from last Sunday's blog remain unchanged.  While much of it was premised on the possible replacement of Benanke with a Paul Volcker disciple, not all of it was.  A good portion of my concern had to do with factors such as the conditions of the charts, historical precedent, 4th quarter earnings reports and many other factors too numerous to give each justice.

So, for now, stay with the program.  I'll be watching daily and will alert you as to whether a mid-course correction needs to be considered.

If you're a Bernanke fan and wish to take exception, TAKE ME ON!

Marko's Take

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