{"id":23424,"date":"2011-08-25T07:00:38","date_gmt":"2011-08-25T11:00:38","guid":{"rendered":"http:\/\/countingpips.com\/fx\/?p=23424"},"modified":"2011-08-25T07:00:38","modified_gmt":"2011-08-25T11:00:38","slug":"the-strange-case-of-dr-bernanke-and-mr-market","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2011\/08\/25\/the-strange-case-of-dr-bernanke-and-mr-market\/","title":{"rendered":"The Strange Case of Dr. Bernanke and Mr. Market"},"content":{"rendered":"

By Kris Sayce <\/abbr><\/p>\n

Is it time to get excited about the stock market yet?<\/p>\n

This morning the U.S. S&P 500 gained 3.4%. The CNBC presenters were beside themselves with excitement.<\/p>\n

What excited them even more was the 3% drop in the gold price\u2026 to USD$1,835. That\u2019s a fall of nearly $100 since earlier this week. And maybe it\u2019ll fall further\u2026<\/p>\n

Or maybe it won\u2019t.<\/p>\n

But, let\u2019s calm down and reflect before you jump in and buy so-called bargain stocks. Because before you buy you\u2019ve got to understand why the market is behaving this way.<\/p>\n

Well, let me show you\u2026<\/p>\n

 <\/p>\n

Fear the Beard<\/strong><\/div>\n

 <\/p>\n

Cop a look at this chart. It\u2019s the three-month chart of the U.S. S&P 500:<\/p>\n

\"U.S.
\nClick here<\/a> to enlarge<\/div>\n

 <\/p>\n

Source: Google Finance<\/em><\/div>\n

 <\/p>\n

The key period is the past two weeks. The period of extreme volatility gives away what\u2019s really<\/em> happening.<\/p>\n

It\u2019s all based on what one guy with a beard may or may not say at a speech in Jackson Hole, Wyoming later this week\u2026<\/p>\n

In fact, it\u2019s not even about what he\u2019ll say\u2026 it\u2019s just as much about how the market interprets<\/em> what he says.<\/p>\n

And unless he explicitly says, \u201cThere will\/won\u2019t be more money printing<\/em>\u201c, market players will have to draw their own conclusions.<\/p>\n

In other words, you should expect more of what you\u2019ve recently seen \u2013 lots of ups and downs.<\/p>\n

The way we see it, the market isn\u2019t normal. It\u2019s become a Dr. Jekyll and Mr. Hyde<\/em> market. Or should that be a Dr. Bernanke and Mr. Market<\/em> market?<\/p>\n

To explain what we mean, let me show you another chart.<\/p>\n

This one is the five-day comparison of the S&P 500 index (blue line) and the SPDR Gold Trust [NYSE: GLD]<\/strong> (red line) exchange traded fund:<\/p>\n

\"comparison
\nClick here<\/a> to enlarge<\/div>\n

 <\/p>\n

Source: Google Finance<\/em><\/div>\n

 <\/p>\n

By the way, for the first time ever, earlier this week the market capitalisation of the SPDR Gold Trust ETF exceeded the market cap of the SPDR S&P 500 ETF [NYSE: SPY]<\/strong>.<\/p>\n

We guess that means more folks are buying gold.<\/p>\n

 <\/p>\n

Gold up, stocks down, gold down, stocks up<\/strong><\/div>\n

 <\/p>\n

Anyway, what drove the gold price up over the past week? That\u2019s right, the prospect of U.S. Federal Reserve chairman, Dr. Ben S. Bernanke playing clickity-click with his keyboard to create a few hundred billion new dollars.<\/p>\n

What drove stock prices down? That\u2019s right, fear of the U.S. economy going into recession and the Fed needing to print more money.<\/p>\n

Roll forward a few days\u2026<\/p>\n

What drove the gold price down last night? The prospect that Dr. Ben S. Bernanke would clickity-click on his keyboard to create a few hundred billion new dollars\u2026<\/p>\n

[Reader’s voice: hang on a minute, you just said that was the reason for gold going up!]<\/em><\/p>\n

Don\u2019t panic, we\u2019re about to explain.<\/p>\n

The reason gold went down last night and stock prices went up was because all the lovely new money could stop the U.S. economy going into recession. And that\u2019s good for stock prices.<\/p>\n

If you think this makes no sense\u2026 that surely printing more money is printing more money\u2026 then you\u2019re right. But nothing makes sense in financial markets anymore.<\/p>\n

In reality nothing will stop the U.S. going into recession. And odds are it already is in recession.<\/p>\n

The market is just to-ing and fro-ing between looking at the glass half full and looking at it half empty\u2026 where in reality it\u2019s the same glass with the same contents\u2026 nothing has changed one day to the next.<\/p>\n

Today the market forgets the reason to buy gold is to protect against central bank money-printing. All it sees is money-printing causing stocks to go up\u2026<\/p>\n

So investors dump gold and buy stocks.<\/p>\n

What will they do tomorrow?<\/p>\n

Who knows?<\/p>\n

They\u2019ll probably buy more stocks and sell more gold\u2026 but then again, perhaps they\u2019ll do the opposite.<\/p>\n

 <\/p>\n

Grab some popcorn and watch<\/strong><\/div>\n

 <\/p>\n

What we do know is this: market and economic fundamentals are playing absolutely no part in the current market action. None whatsoever.<\/p>\n

The only influence on the market is one man: Dr. Bernanke.<\/p>\n

We\u2019re prepared to say that no one person in the history of financial markets has had as much influence on markets as Dr. Bernanke.<\/p>\n

This is surely why it\u2019s no coincidence that markets have been almost as volatile as they\u2019ve ever been.<\/p>\n

We\u2019re sure you\u2019ll get the temptation to dive in to pick up a bargain here or there. But we\u2019d say resist\u2026 for now. This is a market for big risk-takers (traders and small-cap punters). It\u2019s not a market for conservative investors.<\/p>\n

For you, if you\u2019re a long-term investor\u2026 someone who\u2019s thinking about saving for retirement our advice is to sit back with a bucket of popcorn and just watch the market to-and-fro.<\/p>\n

Cheers.
\nKris<\/strong><\/p>\n

PS. If you\u2019re not a conservative long-term investor and you fancy a punt on the markets, then believe me, there\u2019s plenty to punt on. But make no mistake, rapid price moves can play havoc with your nerves\u2026 and havoc with stock prices. If you can\u2019t face seeing a stock price rise 20% after falling 15% the day before then steer clear. But if you want the potential to pick up big returns from small-priced stocks then why not check out some of my recent research. Click here for more details<\/a>\u2026<\/p>\n

Money Morning Article: The Strange Case of Dr. Bernanke and Mr. Market<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

This morning the U.S. S&P 500 gained 3.4%. The CNBC presenters were beside themselves with excitement. What excited them even more was the 3% drop in the gold price\u2026 to USD$1,835. That\u2019s a fall of nearly $100 since earlier this week. And maybe it\u2019ll fall further\u2026<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-23424","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/23424","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=23424"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/23424\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=23424"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=23424"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=23424"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}