) -- "Don't fight the
" may be trite advice these days, but it's
has been on a wild tear for the last 10 months, up more than 18% since the start of last June. But now, after a week of corrections in the broad market, investors are wondering if something's changed. After a multi-year rally in stocks, is Ben Bernanke wrong from here on?
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My money's on a resounding no.
For the last five years, a big group of investors has been outraged at the Federal Reserve's willingness to pump money into the system. A Google search of the words "Bernanke" and "immoral" yields 4.9 million results; the Fed Chairman isn't making many friends for his efforts. But I think that a lot of investors are missing the bigger story here: Wrong, right or indifferent, you can't fight the Fed and make money.
I doubt anyone thinks that our central bank dumping cash into the economy is ideal. But it seems like too many investors think he has a choice. He doesn't.
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A few weeks ago, I was at the Market Technicians Association symposium in New York. One of the speakers,
contributor and SkyBridge Capital founder Anthony Scaramucci, made an unfortunately insightful comment: "Chairman Bernanke is the only functioning member of the government right now!"
To be clear, Scaramucci is hardly a Fed apologist. His point is that the Fed is fighting one of its most menacing foes: deflation.
Even though the "traditional" gauges of inflation are reading positive, a more fragmented look at prices shows that while some prices have gone up, other assets have actually deflated pretty significantly post-recession. Based on the yardstick the Fed used in the two and a half decades leading up to the Great Recession, Bernanke and his cohorts would actually have to turn the Federal Funds Rate negative in order to meet their rate objectives.
So instead, they're throwing money at the problem until it goes away.
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It's not that the Fed
to punish savers and spark huge inflation. The fact is, with rates already skimming the ground, they're out of tools.