The Best Bernanke Can Hope for is to Buy More Time – Stock Market Bubble Will Burst Eventually

by | Jan 2, 2011 | Headline News | 20 comments

Do you LOVE America?


    Following up on our most recent post discussing Peter Schiff’s views on inflation and rising asset prices, we bring you some market analysis from the financial gurus at Zero Hedge and Trim Tabs:

    From Trim Tabs:

    At the time we released our report, many people thought it was crazy to suggest that the Fed or the government would manipulate the stock market.  Yet Ben Bernanke, Alan Greenspan, and Brian Sack have all but admitted publicly this year that the Fed attempts to prop up stock prices.

    The market cap of all U.S. stocks increased $2 trillion in 2010.  All of the gain and then some, $2.4 trillion, occurred since the end of August after QE2 was announced. Once again, most of the money to push the market cap higher does not seem to have come from the traditional players that provided money in the past.

    If the money to boost stock prices by almost $9 trillion from the March 2009 lows did not come from the traditional players, it had to have come from somewhere else.  We believe that place is the Fed.  By funneling trillions of dollars in cash to the primary dealers in exchange for debt, the Fed has given Wall Street lots of firepower to ramp up the prices of risk assets, including equities.

    But what will happen when the Fed stops buying assets?  If QE2 works and the wealth effect of higher asset prices creates a sustainable economic recovery, we think the Fed will stop its QE activities.  The Fed is legally mandated to manage the economy, not the stock market, and we think the Fed will sacrifice the stock market to its legal mandate.  If that happens, stock prices are likely to plunge to well below fair value.

    A more likely outcome is that stock prices will be higher by the time QE2 ends, but economic growth will not be sustainable without massive government support. Then even more QE will be needed, and stock prices could keep rising for a while.  In our opinion, however, no amount of QE will be able to keep the current stock market bubble from bursting eventually.

    Zero Hedge weighs in:

    Ergo our call earlier that Bernanke has at best +/- 150 days to assuage the market’s fear that QE2 is ending (not to mention that we have a huge economic recovery, right Jan Hatzius? We don’t need no stinking QE…). Therefore the best Bernanke can hope for is to buy some additional time.

    None of it is real, folks.

    Can stock markets go up forever? We suppose so. If The Fed introduces QE3, QE4, QEx, then sure, asset prices can rise indefinitely. But that doesn’t mean things are getting better.

    Either way, we’re in trouble.

    At some point, however, something is going to break, and the whole thing – stocks and bonds (and therefore the US dollar) will come crashing down.

    It’s only a matter of time.

    Hat tip, Zero Hedge


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      1. We have been in trouble for a very long time allready .But america has the oprinting press.They can continue flaoting this system for a number of years  by adding cash into the system .Its like keepimng a coma patient alive , you have to keep injecting  slowly and at specific times to keep the patient alive .They are doing this with the Economy . Knowing that this can go on for more years before SHTF literly ,It gives you more time to prepare  .  When oil goes to 150 to 200 bucks a barrel by next august, the onset of inflation will be tremendous as costs will go upon eveythign . The liars continue to throw faulty data and numbers out to the media  and they will continue to do so .Even if The Government did know that on a particular date the stock market will crash or they will revalue the dollar or have Bank holidays  ,you the people will be last to know .Its in thier best interest to muslead to you as well as to Lie to you , they are very good at it and its part of thier protocol. At some point, however, something is going to break,It’s only a matter of time. Months or Years?

      2. I could be wrong, but I don’t think oil will go to those heights in the next few years unless the world REALLY turns on the dollar and it becomes worthless.  I think it will stay in the 90-100 range, with maybe a 10-20 buck short lasting swing on either side of that.

        My reasoning is the price will go up until demand tapers off, then it will fall back to around the current level, with perhaps an over correction of down to 70 for a short period, then back up.  Every time it looks like there is going to be any sign of a real recovery, oil will go up and nip it in the bud, then fall back.

        We will go thru that for the next couple years, but as the FED continues to print, the “natural level” of price will continue to climb higher, and by 2013-14, it will be in the 120 range, with the same deal…..spikes/dips of 20 bucks.

      3. Comments…..I do not think the Fed can keep this bubble going for years.  I dought it will last another 18 months.

        The tension in America among the unemployed/homeless is growing by the day.  With the cut backs that are going to be coming down the line from the New Congress,  there is going to be a lot of unhappy people.

        Many of these people are going to be seinors on Social Security, Welfare, and government pensions (when the cities/states go bankrupt and can not pay their retirees pensions.).  These citizens will not go quietly into the night. 

        Then you will have the people who recieve SSI, Medicaid, Food Stamps joining the frea wanting their $ that were cut back.

        That doesn’t even count the Universities that were counting on funding from several different grants, School breakfast/lunch and after school snack programs and senior center lunch programs will be going.

        Businesses will be laying off employees when they can no longer get funding for Job Core or tax breaks for hireing students, the physically dissabled or the Welfare Work  Programs.

        Last but not least, the Illegal Immegrants who plan on going to college will be cut.  After what happened in Arizona this past summer, I don’t expect a siesta from the people when this happens.

        The Government is broke, the world can not afford to fund Bernankes’ QE projects any more.  Then the swhtf.

      4. It’s a good thing the gov. doesn’t include food & energy in the CPI……….  No stocks 4 me unless they are hard stock “certificates” with penny gold/silver miners.  Good luck trying to get hard certificates now!  Most brokers won’t do it.

      5. Those days of our market crashing are over, with the PPT and the dark pools of limitless funds that can buy up a trillion in stocks via computer trading to prop it all up.
        In fact, the lower the dollar goes, the higher the market goes since it takes more worth-less currency to buy stocks.
        Anyone still in stocks and dollars needs to have their head examined-GET INTO GOLD.

      6. i cannot understand all this doom and gloom. just look around at all the bright lights and the beautiful new cars and all those pretty girls  and all that wonderful food on the shelves of all our supermarkets.. i listen carefully on tv to our politicians and most of them don’t seem to be worried or look worried about the economy. don’t forget that if unemployment is 9% then that means employment is 91%. that’s pretty good with all the people we have in this country.

        i must say that i’m not at all worried about the economy  -  i think everything is great. as a matter of fact it’s not only great but it’s getting greater

        god bless america and our wonderful institutions that have brought so much happiness and prosperity to so many citizens.
        god bless president obama and his white house team of expert economists from those halls of hallowed education like harvard, princeton and yale. how can anyone in their right mind not have faith in these world class experts.

      7. Mushroom,
        And don’t forget all the foreign countries who adore us and would be at our defense in a moment’s notice.  They are sort of a back up plan in the remote-one-in-a-million chance anything did go wrong.  I think we could expect a hefty bailout from China.

        Keynes was so right and it’s a good thing we are taking his advice to stimulate the economy with government spending.  War and entitlements are really helpful for spending.  If the war drags out another ten years, we should be in REALLy good shape! 

      8. From where I sit I think theres alot of people out there who think the stock market and the economy are one and the same…just like alot of them think that “The United States” and “America the Republic” are the same thing.
        Its sad that people rely on the so called education system instead of teaching and learning themselves…if they did they would understand the differences,differences that the business/govt elites understand and hope that we the people never do!
        They can keep this ruse up for awhile yet(heck, look at how long they have already)but sooner or later somethings gonna break and then TSHTF…you really cant go wrong preparing for whatever happens, and learning new skills and methods will help you right now and after TSHTF. Becoming less interdependent and more self sufficent are always good things…things that will serve you well regardless.
        Seems pretty safe to bet itll come apart soon regardless of how high the stock market goes or how low interest rates stay! Thanks!

      9. The more people who prepare, the better everyone’s chances are.  When the shtf, the unprepared will be knocking on your door with hands out or with weapons pointed.  Unfortunately, it will be family members with the hands out.  How far will a family stretch a one year food supply when the relatives show up?  We can’t prepare for everyone.  Family who would not listen to warnings, and were living it up in the good times, will come expecting help.  We’d be happy to give it all to them and starve if it weren’t for our child.  And if we give away our “rations”, who will be left to protect him?  Perhaps we store away a bit of supplies to give them and say “go away now”.  Does anyone have a plan for this?

      10. Comments….. mushroom, you always make me laugh, that statement is in the dark, and full of $hit. ood follow up amber. 

      11. Comments…..GOOD follow up amber

      12. Comments…..I dont know about “when TSHF” but over here in UK as from Tuesday 4th January we will be paying $9.05 cents for one gallon of diesel fuel and around $8.70 for petrol…has our S..t started to advance rapidly towards the fan?

      13. Beans & rice Amber. 

      14. Has anyone seen the “Alaska Experiment” ? It is where people go out into the tundra and try to survive on little to nothing except for a few rations and their life experiences for several months.

        I never watch reality shows but this is really interesting to me to see “city folk” actually having to learn to shoot a gun so they can eat and learn to store what they get during the late summer months so they have something to eat during the winter.

        Toward the end of the episodes is it amazing how barbaric some of them become.

        I think about how this relates to real life and SHTF situations. Some on the show give up, they simply can’t take it anymore (those would be the first ones that would die off if SHTF) others adapt. Very interesting show!!

      15. Amber,

        Your question is valuable. The answer is difficult. In some previous discussion some months ago, i expressed the same concern.
        I’m trying hard to save money for buying provisions and misc.
        I was very sad and dissapointed when a couple of friends laughed at me and my preps.
        Now i turn my back to them and will not waste my time and words. For family though, it is different. I mean immediate blood line, wife, daughter, my parents, sister, and parents in law.
        What i do is to buy a bit more food and other stuff. When the tough times come my dad and i, can join our forces to defend the property and food. The worst to happen is to survive 5 months instead of 10.
        For me is better to live a couple of months less supporting my beloved ones, rather than knowing that my dad-mom died alone.
        For the rest i don’t give a s…. They must take care of themselves.

        be safe

      16. @ Mona –

        “These citizens won’t go quietly into the night.”

        Ya think????? Grandpa can still sight a rifle and grandma can help spot for him! I mean really, now what do we senior citizens have left to look forward to in our lives? Except for ‘Depends Adult Pampers’ if we should be ‘lucky’ enough to live that long!

        Life is a highway that I started traveling along on the day that I was born. My journey will end the day that I die. Far better to go out with a ‘bang’ as opposed to laying there in the dirt with my dick in my hand and a funny look on my face!

        Now that we have so much less to look forward to in our lives; the more creative we can be with regards to the manner of our death.

        Ya gotta love it! Only in Amerika???

      17. This interview with Marc Faber suggest a similar outcome,,,,

        Or search   marc faber lateline business interview august 26 2009   .Keep prepping folks. Prices may never be as cheap as they are today. Gasoline jumped from $2.99 to $3.10 in my area over the weekend.

      18. Comments…..thank goodness we can’t be arrested  for unspoken and unwritten thoughts………..yet.


        Amber…if you have extra funds, buy rice and put that rice in ziplok bags…give one per family…that’s all you can do..remember, tell them that’s it!!
        And when it starts??? The line will continue till you say, “that’s all folks, for what’s left is for my family”

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