Counterparties: Well Fed critics
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At a conference in Chicago today, Ben Bernanke seemed like he was talking directly to his critics. In a speech on monitoring the financial system, Bernanke’s message was, essentially: we’re keeping an eye on things. (Shadow banking, in particular, is still a risk, he warned.)
Bernanke’s speech comes on the heels of this year’s Ira Sohn conference in New York, where, as Joe Weisenthal and Reuters both noted, one of the major themes among hedge fund bigwigs was “Bernanke hate”. Stanley Druckenmiller, a former protege of George Soros, told the crowd that the Fed “is running the most inappropriate monetary policy in the history of the developed world”. Paul Singer worries that the “cessation of money printing will cause an instant Depression” and says the Fed’s much-discussed end of quantitative easing will be difficult to impossible. And prominent economist Martin Feldstein, a former Reagan econ adviser, wrote Thursday that the Fed’s quantitative easing program has loaded up the Fed’s balance sheet but hasn’t helped the economy in any significant way.
Why all the anti-Bernanke comments and talk of Fed-induced bubbles? Ryan Avent cites a few factors, including recent (nominal) stock market highs and a February speech, in which new Fed governor Jeremy Stein warned of a number of possible financial market bubbles. Paul Krugman thinks the Fed bashing may be just be self-interest — hedge fund managers are paid as a percentage of their overall profits, and the industry certainly has been terrible in that regard of late. Weisenthal says “anti-inflation is kind of a nostalgia trip” for old American hedge fund managers stuck in the mentality of the 1980s.
Pawel Morski looks at lending, the shadow banking sector and the bond market and sees little evidence that the Fed is pushing the financial sector into anything resembling pre-crisis behavior. Still, the anti-Bernanke crowd may have some new ammunition: junk bond yields fell below 5% this week for the first time ever, IFR notes. As the Fed has kept interest rates at historic lows, investors looking for higher returns have piled into the junk-rated corporate debt. Even if that 5% record is effectively meaningless, these milestones can have an effect. “Asset bubbles now rank as the number one concern on credit investors’ minds,” Bank of America Merrill Lynch analysts said. - Ryan McCarthy
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