The Bernanke Deception


Ben Bernanke has repeatedly maintained that his “Quantitative Easing” programs are mostly about helping out Main Street and ordinary Americans.

Unfortunately this claim is not supported by the evidence, and what’s worse is that the “tonic” is not working any more, just as a drug addict keeps needing more and more of their substance to stay “buzzed” and gets less and less effect with each dose.

QE3, the latest round, produced a short-term pop in the stock market.  But we’re now back to levels essentially indistinguishable from those before it was announced, and the market’s weakness the last few weeks has been marked.

What’s worse is why the weakness has come — poor earnings across the board.

Unfortunately for Main Street you can’t produce earnings without, well, sales.  There is a slowdown in sales while costs have risen; this produces lower profits.  Worse, the banks cannot earn much in the way of an interest margin in a zero-rate world, so their earnings are in the toilet as well.

There’s nothing to suggest that sales are going to pick up in the coming days and weeks either; the latest was Richmond Fed which was terrible, showing both slowing sales and margin compression at the same time, a pair of statistics that rarely come together and are never good when they do.

So now Bernanke has a real problem, but he should have seen this coming because Japan did the same thing and got the same results.  After the Nikkei originally cracked their central bank cut rates and ultimately started buying bonds, maintaining ZIRP.   But while they got a nice bounce originally in the stock market look where the Nikkei is now, trading near 9,000 when it was formerly some four times higher!

We’re headed southbound folks; the economy is not recovering and it won’t because it can’t until The Fed cuts this crap out and the Federal Government stops emitting credit into the system and destroying purchasing power, trashing margins and wrecking the competitiveness of not only businesses but the fiscal health of individuals, especially those who have saved and tried to live in a reasonable fashion their entire lives.

Capital formation cannot return until these policies are changed, and there is no evidence that they will change in the offing.

As such while there are certainly opportunities in specific names, being anywhere near the stock indices over the next couple of years is likely to be a pretty ugly experience.

It’s time to take the chips off the table folks; a severe dislocation could come at any time, without warning, and if it does there is little or no room remaining within either fiscal or monetary authorities to attempt mitigating the damage.

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