"No warning can save people determined to grow suddently rich" - Lord Overstone

  • 19 hours Major League Baseball Turns To Blockchain Tech
  • 2 days Institutional Investors Hold A Lot More Crypto Than You Think
  • 2 days U.S. Treasury Yields Could Be About To Break Out
  • 2 days Tesla Stock Stumbles On Model 3 Cancellations
  • 2 days Yuan Rebounds At The Expense Of The U.S. Dollar
  • 2 days Iraq Unplugged: No Internet, No Protests, No Money
  • 2 days The Tariff War Could Spark A Debt Crisis In China
  • 3 days Gold Selloff Continues As Dollar Climbs Higher
  • 3 days Gold Investors In A Frenzy Over Sunken Russian Warship
  • 3 days The New King Of Electric Cars
  • 3 days BlackRock Goes Bitcoin
  • 3 days U.S. Banks See Best Earnings Report In Years
  • 3 days The Case For Gold Is Not About Price
  • 3 days Stock Market Sentiment Turns Bullish
  • 4 days What Is Bitcoin Really Supposed To Be?
  • 4 days The Surprising Media Giant Taking On Netflix
  • 4 days Cybersecurity Stocks Are Red-Hot As Election Looms
  • 4 days Americans Grow Weary Of U.S. Trade Policy
  • 4 days What Putin Really Wants From Trump
  • 4 days Europe’s EV Sales Growth Is Slowing
Stock Market Sentiment Turns Bullish

Stock Market Sentiment Turns Bullish

Quarterly earnings reports have lifted…

Chinese IPO Fervor Slows As Xiaomi Disappoints

Chinese IPO Fervor Slows As Xiaomi Disappoints

The Chinese IPO space was…

The Biggest Winners Of Q2 Earnings Season

The Biggest Winners Of Q2 Earnings Season

The second quarter of 2018…

Jes Black

Jes Black

Jes Black, hedge fund manager at Black Flag Capital Partners, specializes in foreign exchange and global macro trends. Prior to organizing the fund he helped…

Contact Author

Bernanke Put? Maybe Not

In this morning's Financial Times we said Bernanke's appointment would reinforce the idea of a "Greenspan put." But this is easier said than done with real yields at all time lows.

Greenspan's put worked during a 20-year period of disinflation when rising productivity then the China phenomenon drove "core" prices lower. Now headline inflation is spilling into core rates and that will put a policy of targeting core inflation directly at odds with the so-called "Bernanke put."

The main reason a Bernanke put is unlikely to work is that long term yields adjusted for gold are turning up from all time lows. This leaves little wiggle room for the new Chairman (top chart) to soothe the markets as Greenspan has so often done.

If Bernanke is to be as successful as the Maestro, he will have to pull off a Houdini to put gold back in the bag.

With the spread between gold prices and bonds at record highs (bottom chart), the 30-year yield should be above 6%. This is likely to happen now that headline inflation is spilling into the core rate. Therefore, we think targeting only "core" inflation won't work like it did for Greenspan and would thereby neutralize the effect of any "Bernanke put" the equity markets are wishing for.

Recall that gold began to rally sharply in 2001. Now note that the Gold/T-bond ratio (bottom chart) had moved perfectly in line with the 30-year yield for two decades until the very month Mr. Bernanke gave his now famous "helicopter money" speech. The reason is that Bernanke's speech lacked the assurance that a Fed could combat a drop in the market without increasing inflation expectations.

 

Back to homepage

Leave a comment

Leave a comment