Can't Find His Way Home

Blind Faith in Bernanke Is Misplaced 

by Doug Kass

Originally published on Friday, Aug. 31 at 2:07 p.m. EDT.

Ben Bernanke has lost his way home, and a U.S. stockmarket buoyed by the promise or notion of a monetary put is misguided.

Come down off your throne, and leave your body alone. Somebody must change. You are the reason I've been waiting so long. Somebody holds the key.

But I'm near the end, and I just ain't got the time. And I'm wasted, and I can't find my way home.

Come down on your own, and leave your body alone. Somebody must change. You are the reason I've been waiting all these years. Somebody holds the key.

-- Blind Faith, Can't Find My Way Home

I find it hysterical and almost ludicrous that market commentators, investment strategists and investors continue to voice blind faith in the Fed chairman.

Ben Bernanke's poor forecasting capabilities rival those of his predecessor Alan Greenspan, and that is not a good thing for investors who hold onto the premise of a self-sustaining domestic recovery.

As I have written repeatedly over time, Bernanke got the housing bubble wrong, he failed to anticipate the recession in 2008 and the role and systemic risk of derivatives (which Buffett callsfinancial weapons of mass destruction), and he didn't recognize until 2010 that the U.S. unemployment problem was nearly as much structural as cyclical.

And he is now wrong on the benefits of further quantitative easing. Three years after the Great Recession and after the implementation of QE1, QE2, Operation Twist (and its extension), U.S. real GDP is growing at only about a 1.7% rate.

In reality, more cowbell may actually be counterproductive in penalizing the savings class, creating a disincentive for banks to lend and by putting more pressure (as commodities rise) on the middle class (which I call screwflation).

Low interest rates have become a blunt instrument for generating growth, but the growth problem lies not in the level of interest rates -- rather, the problems have been long in the making and are structural (in the categories of employment, education, etc.).

I am not being a skeptic; I am being a realist. What ails the U.S. economy is not liquidity; it is confidence.

We don't need any more bond buying or quantitative easing, which is no longer positively impacting the real economy; we need progrowth fiscal policy that addresses fundamental economic issues that have been several decades in the making.

This week I listened to J.P. Morgan Funds' Chief Global Strategist and Head of the Global Market Insights Strategy Team David Kelly with Tom Keene on Bloomberg. Kelly described further easing as toxic. He recommended raising interest rates to more normalized levels.

And I agree.

From my perch, Ben Bernanke has lost his way home, and a U.S. stock market buoyed by the promise or notion of a monetary put is misguided.

At the time of publication, Kass had no positions in stocksmentioned.