This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Weiser: Bernanke's 'Clint Eastwood' Moment

Editor's Note: This article was originally published at 2 p.m. EDT on Real Money on June 16. Sign up for a free trial of Real Money.

Guest columnist Michael Weiser is a family fund manager and public relations consultant.

Ben Bernanke sneezed and the Japanese caught cold.

"Tapering," the Fed chairman's signal to the markets that the central bank would be ever so gentle when it withdrew quantitative easing, was read by traders as the dawn of a new tightening regime. Hedge funds promptly covered their short positions in the yen, and domestic Japanese investors covered theirs. The yen gave up 10 hard-fought, big figures of decline, and Japanese equities dropped by 20%. Pity the Japanese central bankers who thought they were the masters of their own destiny.

The time for subtlety is over. Wednesday's Federal Open Market Committee meeting may be Bernanke's last chance to get this right. His verbal interventions, including Thursday's "analysis" piece by the Fed's favorite verbal vehicle, Jon Hilsenrath (conveniently dropped in the online edition of The Wall Street Journal at 3:30 p.m. EDT, just in time to fuel a powerful stock rally at the close), haven't worked. Hilsenrath's focus on long rates was seen for what it was: a thinly veiled attempt to tell hyperactive traders to relax.

Traders aren't going to relax. But they can be bullied, and that's what I think Bernanke will do. The Fed won't change the amount of securities it buys -- but I think it will shift that mix of securities to long-dated Treasurys only, rather than a balance between Treasuries and mortgage-backed securities. The stock market does not expect it, and the bond market surely doesn't.

If he wants to keep long rates in check, going to war with the bond market by doubling the size of his long-dated Treasury purchases will work a whole lot better than placing an item in Hilsenrath's next column. The 10-year rate will come down -- and fast -- and the yen can return to its status as the favorite of carry-traders the world over. The likely increase in mortgage-backed yields will be cheered by pension funds and other yield-hungry investors who will finally have something to buy. Bernanke will also have a post-meeting press conference to use in delivering to bond vigilantes a message they can understand -- that there's more where that came from.

For Bernanke, the stakes of cratering the Japanese economy and triggering a worldwide selloff in stocks are just too high for him to continue being subtle. This has become a Clint Eastwood moment for Bernanke, who needs to tell bond traders to make his day.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free

Markets

Chart of I:DJI
DOW 17,679.10 -151.66 -0.85%
S&P 500 2,055.48 -20.33 -0.98%
NASDAQ 4,749.5590 -55.7320 -1.16%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs