Ben Bernanke, Jedi Knight

Do or do not. There is no try.

That’s what I thought as I listened to Ben Bernanke discuss reducing the Fed’s asset purchases, then “clarify” his remarks, then testify before Congress that the Fed will remain accommodative. Prior to the Fed’s competing mandates—stable inflation, full employment, financial stability—comes one operational priority: clear communication. In the face of Fed uncertainty, investors have been known to panic.

But Bernanke’s mind trick seems to have worked. After falling 10%, the US equity market has rallied to new highs. After rising ¾ of a percent, 10-year bond yields have stabilized at 2 ½ percent. The markets seem to understand that while higher rates are inevitable, they aren’t imminent. The Chairman may not have levitated the markets, but he’s at least kept them from going over to the dark side.

Still, it’s going to continue to be a monumental task: weaning the economy off the gobs of easy money it has become accustomed to. The Fed now has a $3.5 trillion balance sheet—four times its size prior to the Financial Crisis. Those reserves represent a significant risk.

Because the Fed itself is significant: the cost of money surrounds and penetrates everything; it binds the markets together. It’s what gives the Fed its power. If Ben’s getting too old for this sort of thing, his successor needs to be a true Master as well.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2013-07-22T10:14:14+00:00 July 22nd, 2013|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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