Saturday, January 1, 2011

The Bernanke Stock Jump

On Aug 27, 2010 Bernanke gave a speech at Jackson Hole and since then the market is up around 20%.  I suspect the speech resulted in the stock market jump.  However, there is no meat in the speech to justify such a jump.  It did make it seem that Bernanke was not going to start an "exit strategy" but instead thought he needed to add more money.  Since Bernanke has no skill in predicting the future nobody should trust any forecasting he does. 

In particular Bernanke thought he could hold down interest rates but bond yields are going up since then. At this point bonds are about the worst investment you can make so they should go down and interest rates up for some time.  During the history of the Fed messing with interest rates, stocks tend to move the opposite direction interest rates are moving so we should expect stocks to go down.

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