The Bernanke Put is firmly in place. The much awaited Bernanke speech was just a rehash of previous statements. But others like Fed mouthpiece, the WSJ's Jon Hilsenrath, has basically said more QE is on the way and it's just a matter of when. Bernanke's own words suggest the Fed is keen to promote higher stock prices. As he stated: "It is probably not a coincidence that the sustained recovery in U.S. equity prices that began in March 2009, occurred shortly after the FOMC's decision to greatly expand securities purchases. And, that this effect is potentially important because stock values affect both consumption and investment decisions." Therefore, we know how he grades performance-the level of the S&P 500. How he believes all this has helped the economy is unexplained. The Bernank has the printing press and you don't, so don't fight him.
Investing tip: Just yesterday we discussed a range of strategies to protect your portfolio from a poor outcome post Jackson Hole. It looks like the Bernanke Put is firmly in place so shorting seems unwise. You either don't play or go with the presumed next liquidity injection, but you don't need to go "balls to the wall" especially when BRICs and others are in very poor shape technically and fundamentally. Volume expanded on the volatile day's action but was still below recent standards. I suspect most traders left for the long holiday weekend around noon. Breadth per the WSJ was positive.
", that this effect is potentially important because stock values affect both consumption and investment decisions."
The above statement is probably true only in a specific situation. If the stocks are held (like houses) by the majority of the population then it may be true. But if the stocks are held by minority then it may not induce consumption and investment to the extent he expects. Should think out of the box.
Assume a rich person spend $ 100 for his ( her ) lunch, and 99 plain people spend $ 5 for his ( her ) hamberger lunch.
Which one would stimulate the economy more ?
If the rich can eat 5 times of lunch a day would be equal ... ( need digestive pills. ) so impossible.
Or, he could go $ 500 lunch in a luxury restaurant. In that case, the money tends to stay 1 % group, because there is a high probability that restaurant owner might not be in the 99 %.
So, money from the rich tends to stay in the group, so not much trickle down effect they tend to insist. Printing money to boost the stocks of 1 %, who might own majority of the whole stocks doesn't help much, but soaring commodities would heavily diminish the 99%'s income easy. You still think BB is a HERO ??