Friday, November 6, 2009 11:33 AM
Is the Fed herding investors to the slaughter?
Simon Avery
Why do the markets enjoy the hardship of others?
Specifically, why does news that last month 190,000 jobs disappeared in the U.S. and another 43,200 vanished in Canada spur stocks? North American markets rose in early trading before going almost flat before noon. So how sadistic are these capitalists?
Well, for one good explanation it’s worth turning to the Pragmatic Capitalist, a much-loved blog on the markets. PC argues that the U.S. Federal Reserve’s policy of anemic interest rates is forcing investors to incur greater risk because traditional safe havens like insured bank accounts and government bonds don’t offer any return to speak of. Fed chairman Ben Bernanke is essentially pushing investors into the stock markets to find any sort of returns. As the markets keep rising, investors are buying into “Bubbly Ben’s” idea that a country can print its way to prosperity.
“The real question investors need to ask themselves is this: if we truly are in the middle of a Fed-induced liquidity rally where the fundamentals simply don’t matter, do you buy now or wait it out for the inevitable bust?”
