Do We Need Superman Bernanke?
I must admit that I've been following the banking crisis in the U.S. with a bit of Schandenfreude. (and not just because I've been short US financials) Every time a bank says they are well capitalized, they turn around and issue more stock. Every time an analyst says the worst is over, the estimates of write downs balloons further. I certainly don't envy Mr. Bernanke's position but he was at the helm when lending standards were loosened. So what is the role of the Federal Reserve? - Stable inflation or full employment? It seems that neither is being fulfilled right now. In fact it seems that the Fed's role is to bail out the banking elite while risking worse inflation on everyone. Bailouts are bad for the $US, bad for inflation, and engenders moral hazard. Let capitalism work with normal banking regulation and stop propping up investment houses and banks lest the US banking system should become sclerotic (an Economist word) like the Japan of the 90's.
This website has some good commentary that is spot on and includes a 2 minute testimony from Superman himself hedging about whether Fannie/ Freddie will get a bailout.
http://market-ticker.denninger.net/archives/2008/07/11.html
posted by Des @ 7/12/2008 07:58:00 PM
2 Comments:
I agree with you what the Fed's role should be. I fully expect they will do the opposite and bail out the banks.
This whole thing really does tie in with the commodities boom. As people sell off Treasuries and the $US sells off, the price of commodities will continue higher. OPEC and Saudi have even said in public that this is so!
I think when the deflationary scare heats up some more, I'm going to lever my portfolio more towards commodities. I've come to the conclusion that buying the commodities directly is the way to play this. I don't mean futures, but as you may be aware there are many agricultural and base metal type ETFs that the average investor can buy on a stock exchange without having to deal with a commodities broker/account. They many not be perfect but it's easy.
The problem with some of the commodity type companies that extract and mine the stuff is that they are producing at time of inflationary inputs and there seems to be more risk owning them than the actual commodity. Case in point would be the oil and gas companies that have not kept up with the price of oil. Is it lack of market belief that the price of oil is sustainable? I have found that more likely the oil and gas companies have faced increased cost pressures as well as flattened production growth even as cash flow has increased! The market doesn't like this cost/inflation uncertainty.
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