Breakout

With Stocks Hovering Around Record Highs, the Bernanke Legend Takes Shape

Breakout

He is arguably one of the most polarizing figures in finance and his reviews run hot or cold, but never tepid. So bold has the policy-making been during the tenure of Federal Reserve chairman Ben Bernanke, that his place in the history books has already been secured, though the outcome of his unprecedented intervention is still unknown.

Even now after six years on the job, Bernanke is still winning over begrudged converts. As The Wall Street Journal highlighted, Dow theorist, Fed critic and long-time bear Richard Russell is now also playing for the other team: "By taking a position in the market, you’ll be casting yourself on the side of the optimists, and you’ll also be casting your vote on the side of Ben Bernanke and the Feds,” Russell said. “Besides, it’s fun to be able, for once, to place yourself on the cheerleaders’ side of the U.S. markets, and it makes sense to be on the side of America’s Federal Reserve.”

Of course, the former Princeton professor and student of the Great Depression also has plenty of long-term supporters, including the founder of Hays Advisory Group, Don Hays, who just penned a note to clients entitled, "Thank You Mr. Bernanke." As he describes in the attached video, the controversial steps that the Fed chief has taken over the past four years "are the right medicine for a very sick patient."

"If you look at the stock market back in 2009, it was following exactly the same pattern that it was in 1929," says Hays. "Bernanke put the monetary liquidity in and, in my opinion, he saved the economy from [repeating] that horrible event."

Related: 4 Years In and the Bull Market Still has More Room to Run

Today with the financial system stabilized, stocks at record highs, and housing and employment making their own strides towards improvement, it would be difficult to argue that Bernanke has been wrong. And yet each month, as the Fed plows another $85 billion into the bond market in a bid to lower rates, inflate asset prices (including stocks) and stimulate confidence and hiring, it's like a needle in the eye for critics who have predicted inflation is coming and the end is nigh. Chief among their concerns are doubts as to how — and if — the Fed will ultimately be able unwind a balance sheet that could touch $4 trillion by year's end. It's a widespread and valid concern, but not one that Hays shares.

"I'm not saying no problem at all. It'll take some brains, but I think Bernanke has the experience and the intelligence to do so," he predicts, pointing out that while the stock market has now recovered to pre-recession highs, it is still much too early to start worrying about the Fed's next phase: tightening.

Rates

View Comments (242)