Bernanke’s Stock on the Rise

Is Bernanke's stock finally rising? The pile-on against the Fed chair reached a crescendo in the wake of the emergency 75-basis point rate cut. But Bernake's defenders are starting to come out of the woodwork. Unlike the blogmob calling for Ben's head on a platter, Ben's supporters are rationally assessing the situation, pointing out his limited options. Bernanke has finally caught up to the market with his recent round of cuts, although he clearly waited too long, and Randall Forsyth is putting the recent events into context:

...critics of the Fed's rapid fire rate cuts contended that Chairman Ben Bernanke was caving into the stock market's demands for easier money. But after news Friday morning that U.S. employers cut their payrolls in January for the first time since 2003, the justification for the rate cuts was more apparent.....if the markets are right, the Fed just played catch-up last week. Barron's

Bernanke was going to cut, although the timing of the Kerviel affair was unfortunate:

Lots of observers second-guessed Mr. Bernanke. When it came out that a rogue trader at Societe Generale played a big role in the stock selloff earlier this month, Mr. Bernanke looked like he got whipsawed by a nobody.

What do Mr. Bernanke’s critics have to say today? The recession threat looks real and a federal-funds funds rate at 3% might be just where it needs to be. “No one can argue that these numbers are not at recessionary levels and the Fed has no choice but to continue to lower interest rates,” says Kathy Lien, chief strategist at Forex Capital Markets. MarketBeat

Following Greenspan is proving to be no easy task, and Ben will soon have the scars to prove it. But his dilemma might come down to choosing inflation over the prospects of deflation, which would be a bigger disaster.

Journalists are not the only people defending Bernanke; he is catching support from Paul McCulley of Pimco, among others.

Jean-Marie Eveillard agrees with McCulley as well. Eveillard is quick to note that while the rate cuts might give a sense of panic, appear to pander to the stock market, hurt the dollar and fuels inflation, but it might be the only road Ben can take. The U.S. debt problem is severe, and inflation is far superior to deflation. We can always slam the brakes on later, and McCulley thinks Bernanke is better off taking the inflationary path. There is no perfect solution, and he is doing a good job balancing the various risks, given the tools he has to work with. 

McCulley is also of the mind that the credit markets cannot truly recover, and witness actual risk taking as opposed to risk aversion, until there is more transparency with respect to the losses in the financial sector and the ongoing recapitalization of the financial sector is completed.

Once that happens, risk appetites will return.

McCulley also thinks the Fed cuts over the past two weeks would normally be enough to encourage risk taking to resume, but the monoline insurers are the wildcard; we will not know which way the dominoes will fall until that gets sorted out.

Yes, the monolines are the key,although market players have had time to get their ducks in a row and prepare for the worst.

Still, Eveillard is of the mind the bounce in the markets is only a respite from the big bad bear market. He thinks the recession risk is lower in Europe and Japan than in U.S., but recommends staying away from companies with debt-laden balance sheets. He is not keen on buying banks or brokers, and believes investors will need to carefully discriminate between various financial companies and sectors, and not paint them with a broad brush.

Ignore McCulley and Eveillard at your own risk; they know what they are talking about, unlike some of the hotheads that have turned Ben into their favorite whipping boy.

Ben Bernanke, Vindicated
MarketBeat

Fed Catches Up With Market
Barron’s

Bernanke’s Fed
Jeremy Siegal
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WealthTrack with McCulley, Eveillard and Richard Bernstein

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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

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