All Posts Tagged With: "ben bernanke"

Why is the biggest story of the day? Because Ben Bernanke is a well-intentioned arsonist. Bernanke inherited an American and global economy built on an upside down pyramid of debt, with a very small asset base. When the entire edifice began to collapse in 2007, the Fed Chairman was slow to react.

Mr. Bernanke defended himself and the Fed against suggestions that he was too eager to aid large financial institutions last fall and winter, while sacrificing the interests of small businesses and everyday American citizens.

Two other items of note in yesterday’s housing numbers. The First Home Buyer’s consolidated their position as the most important group propping up Australian house prices. First home buyers increased their percentage of total owner-occupied mortgage demand from 28.6% in April to 29.5% in May. Nearly a third of all demand for new mortgages is coming from new buyers sucked in by the grant. Hmmn.

There are several components of demand. There’s real economic demand (you need the stuff to make other stuff). There is investment demand (you’re buying it in order to make a profit from what you think the price trend is. There is also pure speculation, and it’s possible that some middle-men were flat-out speculating by buying alongside China’s State Reserve Bureau (sort of like the banks and brokers in the U.S. buying Treasuries ahead of the Fed late last year to improve Q4 earnings).

There’s the smart money that goes with the trend. There’s the dumb money that bets against the trend. And there’s the money that doesn’t know whether it is coming or going.

The trouble is always figuring out which is which.

Do you think maybe Dr. Bernanke is just trying to talk his book too? After all, the U.S. Treasury has heaps of debt to sell this year (gross issuance over $3.25 trillion according to Goldman). If Dr. Bernanke makes adult sounds come out of his mouth, it might give people the impression the U.S. is returning to sobriety and fiscal sensibility.

So from a strategic point of view, we believe equity investors want and need to see stronger economic and earnings results to drive indexes higher, while bond investors need just the opposite to calm Treasury yields down.

As a way for people to build wealth, this economic model of the Bubble Period was as ineffective as a bad banker. It was a ‘have your cake and eat it too’ school of financial success with an obvious flaw. People noticed it when the correction began.