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Hirsch: Bernanke Created Inflation — and He’ll Fix It


He's just 13 months into his second four-year term as chairman of the Federal Reserve, and by all accounts it is still too early to say whether Dr. Ben Shalom Bernanke will be appointed to a third term. While the legacy of his long-running and legendary successor, Alan Greenspan, has undergone some revision lately (to put it kindly), Bernanke's career as the nation's central banker will undoubtedly be remembered as one of crisis and response.

In a recent chat, Jeffrey Hirsch, author of Super Boom and the editor and publisher of the Stock Trader's Almanac, told the Breakout team that he thinks this student of the great depression is determined not to make the same mistakes of his predecessors from the 1930's (e.g., tightening credit too early and choking the recovery). In fact, Hirsch says that, if anything, Bernanke will go down in history for his controversial efforts to "create normal inflation" that will help inflate the market.

Of course, the assumption there is that Bernanke will be able to kill the beast he has unleashed, which presumably would require that he acknowledge that inflation even exists in the first place. To those who argue Bernanke has it all wrong on inflation, and maybe even dangerously so, the entire legacy question itself is a tad presumptive. But right or wrong, Hirsch says he thinks the Fed chief will not only change his tune on inflation but is already dropping hints on what he says will be a well-telegraphed transition to a tightening cycle.

"He's gonna tighten, he's gonna turn the screws a little bit," says Hirsch. "He's going to do it patiently, he's going to announce it, he's going to telegraph it."

Hirsch says inflation has begun to pick up, it will pick up more over the next seven years or so, and then once it starts to taper off, the stock market's traction will start to pick up. What to do from now until then?

Hirsch says he doesn't think things will be as difficult as they were in the latter part of the 1970s and early 1980s, but he concedes that things will be tough for the buy-and-hold crowd for the next several years. Things could be more interesting for those inclined to trade it, loading up the truck under Dow 10,000 (where he thinks we're headed for the shorter term) and then selling high.

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