Aaron Task kicked off the
"RealMoney" radio show Wednesday with some thoughts on
Chairman Ben Bernanke's congressional testimony, the first time anyone other than Alan Greenspan has given this speech in more than 18 years. Task, co-executive managing editor of
, will be filling in for host Jim Cramer all week.
While the headlines have emphasized Bernanke's supposed hawkishness, Task said that he's a man who is likely to let inflation run more than his predecessor did.
Task said that Bernanke hit all the expected notes: that there are more rate hikes to come, that the Federal Open Market Committee is off auto-pilot and will make decision based on forthcoming economic data, and that the economy is on solid footing.
Moreover, Task pointed out, while Bernanke said the central bank will keep inflation in check because "stable prices promote long-term economic growth," the new Fed chief also said that the policy response to inflation need not be as great as in the 1970s, despite the rise in energy prices.
In fact, he didn't seem terribly worried about energy prices, noting only that they carry a potential inflationary impact of energy prices, Task said.
And Task added that Bernanke also seemed to dismiss the steepening yield curve inversion, a leading indicator most infamous for predicting the nation's economic recessions.
"He's saying that the inversion of the yield curve is different this time," said Task, noting that Bernanke said foreign demand for Treasuries and the needs of corporate pension funds for longer-dated debt have kept yields at the long end low.
And Bernanke does not feel that the conundrum will affect the Fed's ability to fight inflation, Task added.
"Bernanke feels in his heart of hearts that a little bit of inflation is better than a little bit of deflation," Task said, noting that the Fed head ticked off a list of deflationary phenomena associated with globalization.
If this is how the head of the central bank will handle the course of economic growth, said Task, then investors might want to stick with some exposure to gold.
Long term, this would also be bad for the dollar, he said.
The U.S. government is incredibly indebted, Task added. This strategy may help the government repay its debt because inflation erodes the value of fixed-income securities, he said; and for the debtor, it's easier to make payments on the devalued bond because it costs less down the road.
Energy Rally on Empty
Chris Edmonds, director of research at Pritchard Capital and
energy guru, joined Task to discuss whether the energy market rally is over.
"It's certainly been over for a couple of weeks, at least in the short term," said Edmonds. He said the bearishness boils down to the fact that supply is high and that the risk premium has lately seemed lower.
The warmer-than-usual weather has kept supplies of both crude oil and natural gas high, he said. And risk premiums like unrest in oil-producing countries have left the headlines, he added, noting that they may soon be back.
But Edmonds seemed fairly confident that we are nearing the bottom in terms of energy prices, saying that somewhere in the $6 range was possible for natural gas and that crude oil could come down a few dollars, too.
This is because he believes that larger supply and consumption issues in the U.S. would make it very difficult for energy prices to come down much further.
Task asked if
recent problems getting its rigs out in time was an industry- or company-specific issue.
Edmonds said he believes that the problem belongs to Transocean, and that the stock declines make sense in light of the news. Other drillers will be more upbeat when they report, he added.
However, Edmonds did not seem worried about co-Founder and Chief Operating Officer Tom Ward's resignation from
"He's worked every day since he was 12 ... I think there's a lot to the story that he's just tired," said Edmonds.
A listener wanted to know how low oil prices could go before companies threw in the towel and cut back on drilling, which would hurt stocks like
Edmonds said that drillers are levered to natural gas as much as to oil, and that if natural gas hit $6 and oil came down to roughly $40, then there would be less drilling.
"We're a long way from drilling really slowing," he said.
As far as the energy sector is concerned, Edmonds said that against the backdrop of this warm winter, earnings growth in the sector will moderate.
But he said that the sector can't be examined in a vacuum. "It is not often that a sector outperforms by such a great distance for so long," he said. The broader market will catch up with the energy sector, he said. "That doesn't mean that it's not the place to be ...
investors just have to moderate expectations."
Edmonds told a caller that Chinese demand has been a significant factor in oil prices, and that there is no question that demand in developing nations has been and will be important in the energy sector.
However, Edmonds did not believe reports that China's oil consumption will fall off anytime soon.
"Chinese government statistics are not incredibly reliable," he said, adding that unless China's economy falls flat or implodes, the nation will have to consume oil.
Task said he was surprised at the market's lack of follow-through on Tuesday's rally, given the fact that Bernanke was not overly hawkish.
No one thought he would come out and say that the Fed doesn't care about inflation, Task said.
This reaffirmed his view that the market is taking on a more defensive posture, and in this environment
might be worth a second look.
"A lot of people lost a tremendous amount of money in that stock," Task said, noting that the shares have lost 96% of their value compared to their historic highs.
But the case for the stock includes the fact that it is changing strategy to more open-source software, and that it made a recent acquisition that could boost its margins.
More importantly, Task said there are some very well-known value investors buying up the stock, and that they now account for more than 7% of the company's shares.
A listener wanted to know how to handle more Fed rate hikes. Task said he believes that the market is in the midst of a rolling correction, and is not just being hurt by monetary tightening.
He noted the weakness in the energy sector and the fact that high-flying names including
"The risk is in the stocks that have had big gains ... where people are sitting on fat profits," Task said, also naming
Consumer staples are the places toward which people will gravitate as they look to get a little defensive, he said, adding that stocks like
Procter & Gamble
could see more action in this environment.
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Aaron L. Task is the co-executive editor of TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships.
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