Bernanke Pledges Low Fed Rates Forever

Bernanke Pledges Low Fed Rates Forever

Well, maybe not quite, but it certainly feels that way.

Today, Ben Bernanke pledged to keep the benchmark interest rate at a record low for an “extended period.” (Source: Bloomberg)

His commentary was, as usual, about as insightful as the look my 6-year old weimaraner gives me when I proofread my blog out loud to him.  Considering that Bernanke is the same guy who described the subprime crisis as “contained” in mid-2007, it’s amazing anyone even prints the crap he says anymore.

Interest rates are going to stay low indefinitely because we are in a deflationary trap we cannot get out of.  Consumer prices are going nowhere.  Asset prices (homes, stocks, commodities) are still WAY off their all-time highs set a few years back.

The Fed is pushing on a string – it doesn’t matter what they do.  That’s why the market yawned after the announcement…pathetically, the S&P couldn’t rally more than a few points before slumping back down.

S&P Reaction Bernanke June 23 2010 1

Source: Google Finance

The Fed can extend credit all it wants, but it doesn’t matter, because there is no appetite for it.  The American Consumer is choking on debt.  American businesses are running scared.  You can lead a horse to water, but you can’t make it drink – and this horse can’t stomach anymore credit.

The transformation is complete – no longer are we merely turning Japanese – we ARE Japanese.

Further reading:

  • Well it may not be forever but when rates do go up, it’s going to be mighty painful. And hopefully they will be mighty sure of the economic impact.

  • Mike

    The housing data was complete death which still I’d an understatement. I think inflation is off the table and to b quite honest that would actually be a good thing if we had inflation. We may be heading into a deflationary spiral and there is not much the Fed can continue to do at this point. I think given our debt to GDP ratiothere is still room to continue to at least draw more deficit.

    Japan surprisingly has the yen as a safe haven currency which i cannot get my head around. 200% debt to GDP is just flat out scary and their bonds yield less than 2% even.

    I was curious do you trade emini futures ? I have been considering trading futures for quite sometime. I have just been using the Etfs and options lately. I also am a retail trader and not angina so I’m not sure how that would work out.

    Also do you have a thesis set up for shorting brazil etfs ? I was under the impression that brazil was one of the better countries comparetively.

    The cds market seems to be pricing a 23-24% chance of debt default in both Cali and Illinois within the next 5 years.

  • Mike

    Correction: retail investor and not a profesional fund. iPhone edits things weird I’m still trying to learn how to use it.

  • Brett

    Hey Mike, I trade emini futures using Farr Financial (GoFutures.com) – any commodity trading brokerage will do. Some folks also like Interactive Brokers. I started trading futures for the commodity end of it – since there are not really any other good options or vehicles for commodities.

    I think Brazil and other emerging markets are going to get hit hard when the global economy turns down again. Medium to longer term you are probably right that Brazil is in better shape than others.

    And that’s interesting re: CDS market – I think I’d be inclined to take the “over” on both bets! Here in California they are talking about a potential cash flow crunch as soon as July.

  • Mike

    So normally do you ease in to the eminis future contracts in tiers ? If I recall correctly one point is $50 per contract or so. I may set up an account and trade 1-2 contracts at a time to get my feet wet.

    I agree likewise there is no other good vehicles for commodities which I also want to get involved in as well. Stuff like USO for oil and UNG for natural gas have been a disaster.

    Instead of SDS, have you considered shorting SSO ? Because these leveraged ETFs reset, you get the compounding effect to work for you. In the long term due to the volatility both ETFs anyways grind lower. Plus you can sit in it longer without having to worry about the resetting working against you.

  • Brett

    Yes I do ease into the emini contracts – I don’t have that much capital, so need to make capital preservation my #1 priority (though I guess that should always be the case)

    So I’ve still got one contract right now. Would love to pickup another but I’d hate to get whipsawed here, so will probably stand and watch for the next few days/week at least.

    And yeah good point on shorting the SSO – I’m expecting such a violent decline that I suppose it may not matter either way. But on a longer term position I could see how your play would be better in putting the grind in your favor – I haven’t done the analysis though to be honest (though that may be a fun side project, will keep in mind)

About Author

Brett

Hi, I’m Brett Owens – and I’m a financial junkie. My “problem” started incollege, when I got a little dose of the stock market – man, was I hooked…in no time, I was reading the Wall Street Journal religously.

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