Yesterday, President Obama floated a balloon, which the White House dismissed as oops. He basically was thinking of handing Chairman Bernanke a pink slip. It sounds I am going to talk politics here, but I am really talking about the market implications of such a decision.
The question here is, should President Obama reappoint Chairman Bernanke to a new term? I think it is an essential issue, which needs to be understood. Everything else being equal, this decision alone should impact your pocket book and the 2016 elections. To me, Dr. Ben Bee, as I nicknamed him in my book, has been and still is the only pilot in the plane. If the Nobel Prize was not such a sham, I'd say he deserves one. Here is why - and it won't take long to explain. We need to keep Bernanke in.
The table below was compiled by yours truly from the Federal Reserve quarterly "Z.1" publication.
It is called "Flow of Funds Accounts of the United States." Who would even think of looking at these, right? In there, table B.100 shows Household Net Worth, i.e. the Balance Sheet of Households (and not-for-profit corporations). It makes for an easy read, and dispels any doubts one may have about QE. Not only Household Net Worth [HNW] is at its highest, at $70.3 Trillion compared to its previous high of $64.3 Trillion in Q3, 2007 - yep, 10% higher - but more importantly, Debt as a Percent of HNW is at its lowest in a decade, at 19.1%. To put things into perspective, from 1975 to 2000, 12.5% to 16% was the norm. We first hit 19% in 2003, during the post internet mortgage refinance boom, and we know the rest of the story.
To make a long story short, Dr. Ben Bee started with the TARP bazooka in 2008, and hung in there until his lead gunman John Paulson was fired. Since then, he has been the only pilot. Despite all the hoopla, and given the pretty simple results I just outlined, he got the support of the two main international wing men - ECB Draghi and Japan Abe. It took a couple of years, but hey, who had ever seen this before?
Actually, Bernanke. On November 21, 2002, in the middle of the Internet Crash, he had delivered a speech before the National Economists Club entitled "Deflation: Making "Sure" It Doesn't Happen Here." This was one year after the Bank of Japan first introduced the QE concept, timidly, under the name "Ryoteki Kinyu Kanwa." I am not dropping names here, I am just backing the argument for those of you who may not think it is as serious as I say. So, what looks to most as an improvised explosive device really had been thought through by a few very smart people.
I can go on and on, but I will leave it to this for now. Mark my words. What President Obama is trying to do is transparent, at least to me. Dr. Ben Bee has been the savior - I am not sarcastic here, I mean it. He had the you know what to double dare, and he was right. By replacing him, Obama aims to take the credit. However, in doing so, he risks to derail the train, inflation et al - then again, he does not care, he is a lame duck.
From your pocket book standpoint, here is my best shot. Bernanke stays, winds down QE, P/Es continue to expand, inflation picks up a bit, stocks win, bonds lose, in an orderly fashion. Bernanke goes, same except risk premiums increase, inflation derails, and stocks go back to the 8-14 trading range when uncertainty was key: stocks lose, bonds lose, you lose.
I hope I made myself clear. Bernanke must stay, unless he does not personally want to. I doubt he is "tired" - he will turn 60 this December. But If he does, he should get the credit he deserves - and in my opinion, he has been the best Fed chairman ever. Yes, I am that old, I started my career when Volcker was there. If he does not, be ready for 2016. Everything will be hunky dory, and the credit for the recovery in the financial system, housing et al will go too. Obama and Pelosi and Reid. And Governor Christie.
By the way, even President Obama agrees with this. He reappointed Chairman Bernanke on August 25, 2009, in the middle of the summer doldrums. This was the first time I had seen an appointment made before the final days of a Fed Chairman mandate, in this case January 2010. The reason was simple: political - there was no other pilot, and he needed Dr. Ben Bee. Now, same thing, except he doesn't need him any longer - or at least so he thinks.
For the record, this is written before the open on Wednesday June 19. We closed yesterday at 1652 on the S&P 500 (NYSEARCA:SPY), 3482 on the Nasdaq 100, 1000 on the Russell 2000 (RUT), and 2.17% on the 10-Year T-Note.
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Disclosure: I am long WSBC, ZOLT, WWD, SDS, TWM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.