Bernanke feels that by "intervening in a very strong way" to prevent total system collapse, he saved the world from "another Great Depression." He is adamant that he saved the system and "protecting the system was very important to protecting the economy." To emphasize his point, he cites Ron Paul and says, "I don't know, have people been investing in gold? How's that working out for you?" (Perhaps if we ever returned to the gold standard, this would be a valid comparison.)
When asked by Burt White, LPL Financial chief investment officer, if QE is responsible for the greater income disparity in America, Bernanke emphatically said, "No! ... QE has almost nothing to do with that." Bernanke instead blamed globalization and said that QE and monetary policy has helped to create jobs and "helped the people in the middle." He followed that assertion with, "I'm a blogger now for Brookings Institute." (Bernanke blogged about Greece in July, about nothing in June or August, and plugged his book plug in August just before its launch.)
Regarding rising interest rates, Bernanke non-answered, "It's a tough judgment call at this point."
The closest Bernanke came to echoing an asset manager was, "Start-ups [and small business] have been trending down. Entrepreneurship has not been as good as we would like." He cited heightened regulation and lowered access to credit.
Bernanke's summer commentary proved a spot-on prelude to what is on top Asset Managers' minds this Fall.
David Ellison, Senior Vice President and Portfolio Manager, Hennessey Funds
Ellison said, "The people at the Fed need to just stop talking. You are not going to do these 'one-off' pre-book tours—the book they are going to write after they leave government services." Ellison called the Fed "too much TMZ for me".
"We've had 30 years to raise rates and be the good guy," said Ellison, adding that we are trapped in this situation where rates are low.
Ellison blames the Fed for taking the whole asset class of cash and making it "basically do nothing." As a result, he said, "We've taken money and made it useless. It's like saying we're going to build iPhones for 30 years and make them worthless."
It is this monetary policy that made the "mathematics of a rate increase mathematically scary," said Ellison. "A one percent rise in rates will decline a 30-year bond issued at par 30 percent," he emphasized as if to say "30-year bonds anyone?" Ellison described a 30-year bull market in bonds, in which every time the Fed would lower rates, bond holders would sell and take their profits.
In Ellison's TMZ-world of the Fed, "you can't lose money in bonds because you have 'the maestro' in office." He said that it is now a world in which you cannot make money on "the other side" if you can't make money "on the credit side". He does see a solid opportunity in industries such as banking restructuring going forward. "M&A will be an important part of the process of restructuring." He said we have too many banks and one-third of them do not make any money because they are too vertically integrated. "But we have to have all these products because that's how we get the business," he said, mocking the banks' rationale. Perhaps the one backhanded compliment Ellison gave the Fed is that it is forcing regulation, and "the traditional banks are in pretty good shape." Due to stress tests and this imposed regulation, "they've basically been nationalized," he said.