Has Bernanke got it right?
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“Don’t fight the Fed” is an ingrained financial markets axiom and hence, when Federal Reserve Chairman Ben Bernanke speaks, investors, traders, analysts, economists and fund managers pay attention.
Bernanke testified in Congress on Tuesday and one key message was that the recession should end this year.
German fund managers Mack & Weise (M&W), however, were not impressed.
“That Fed Chairman Ben Bernanke once again takes a fundamentally positive view of the U.S. economy should rather be understood as a warning. Not … a single one of Bernanke’s forecasts in recent years has proven right,” M&W said in a note to investors.
Thanks to what fund managers Martin Mack and Herwig Weise describe as a very defensive positioning — almost 60 percent of assets in cash and nearly a quarter in precious metals — their M&W Privat fund with 86.3 million euros ($114.9 million) under management at end-April has delivered a positive return of 8.9 percent so far this year and 10.9 percent over the past 12 months.
“The responsible politicians stubbornly refuse to address the reasons for the crisis,” they said.
“As long as they try to solve a problem of indebtedness by taking on more debt, and with the help of state interventionism prevent the free-market system from getting rid of ramshackle banks or uncompetitive industries, we are far away from any chance of sustained economic recovery.”
Equity investors obviously agree with Bernanke however, pushing the benchmark MSCI world equity index to a 2009 high today on the back of growing expectations that the worst is over for the global economy.
Has Bernanke really been wrong every time? Share your thoughts.
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What Mr. Bernanke says or doesn’t say is, frankly, beside the point. Central bankers are constrained in what they can say to the media for quite obvious reasons. Just because Mr. Bernanke says something will happen in the future doesn’t mean it will necessarily come to pass, for the simple reason that no one, including central bankers, can predict the future with any reasonable clarity. If they could, they’d be rich and not wasting time answering silly questions from grandstanding politicians and ill-informed media types. Mr. Bernanke knows that; savvy investors know that; even some media types might understand that. Odd how these German fund managers don’t appreciate these obvious truths. Given the rather tiny size of their fund, their criticism ranks as background noise.
There’s no way to know if those ‘less than worse’ signs should be interpreted as signs of recovery, or merely signs of a pause in a continuous decline.
Comparing the graphs of economic activity from the past two years to those of the great depression era would favor the latter interpretation, since there were big pauses back then, and they must have been interpreted by some of that era’s economists and investors as ‘signs of recovery’.
Bernanke has (rather carefully) been too vague to be right or wrong.