Researcher James Bianco: 'We’re Investing in Bernanke'

Friday, 20 Apr 2012 07:42 AM

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Federal Reserve policies are pumping up markets to the point that the art of picking stocks based on corporate and economic fundamentals is dead, says James Bianco, president of Bianco Research.

Since the downturn, the Federal Reserve under Chairman Ben Bernanke has pumped trillions into the economy and slashed interest to ensure long-term borrowing costs stay low in hopes businesses invest and hire.

Such a policy, known as quantitative easing, pumps up stock prices in the process and has also been a tool of choice for the European Central Bank and other monetary authorities.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

"Stock picking is a dead art," Bianco tells MarketWatch.

"The most important man in investing decisions is Ben Bernanke. It shouldn’t be, but it is. We are in a post-crisis environment where the Fed is running the most extreme policy it’s ever run; Europe is even more extreme. That affects all investment decisions."

Since Fed intervention makes short-term stock market plays the only viable investment option, most investors should go light on stocks until fundamentals return to the market's driver's seat and not Federal Reserve juicing, Bianco says.

Furthermore, the Fed will have to mop up excess liquidity in the marketplace once the economy does show signs of improvement or it will face heavy inflationary pressures.

"If Bernanke really wants to instill confidence, he needs to tell us in clear and precise language how the Fed intends to get out of this," Bianco says.

“I get it that you’ve put us on this ‘sugar high,’ rammed interest rates down and stock prices up. But tell me how you’re going to stop, so this is not going to wind up like the fall of 2008 or the summer of 1979 with inflation."

Treasurys, meanwhile, will serve as a good option to ride out current market conditions, Bianco says.

Other high-profile investors agree it's time for the Federal Reserve to stand down and time for elected governments to step up the plate and fix economies and labor markets.

"Where the global economy goes from here will depend less on the actions of central banks and more on whether others, including other government agencies and private sector participants that have the ability to act but lack sufficient willingness to do so, finally step up to the plate," Mohamed El-Erian, CEO of bond giant Pimco, said in a recent presentation.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did





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