MARKETS

A large majority of investors and traders listen intently every time Federal Reserve Chairman Ben Bernanke speaks, but MoneyShow's Howard R. Gold thinks it might be time to to change the station.

Remember those great commercials from the early 1980s for the now-defunct brokerage E.F. Hutton? “When E.F. Hutton talks, people listen,” was the famous tag line.

Well, today's version of E.F. Hutton is Federal Reserve Chairman Ben Bernanke. Whenever Bernanke speaks, investors and traders stop what they're doing and listen with rapt attention.

And sometimes they act on his words, as they did a month ago, when Bernanke's musings about the possible end of the Fed's latest bond buying program (QE3) started a massive sell-off in stocks and bonds.

But market pros and the media pay far too much attention to the Fed chairman's utterances. Not that they're unimportant; as I wrote earlier this year, the late Martin Zweig called Fed policy “the dominant factor in determining the stock market's major direction.”


But Bernanke has said many times that the Fed's actions depend entirely on economic events that are unpredictable and beyond his control.

And unlike the imperious Alan Greenspan, who hung around for 18½ years, Bernanke will go quietly when his second term ends in January. Then he may write a memoir and earn millions in speaking fees. But he's already a lame duck.

On the first point—being at the mercy of unpredictable economic events—here's what he said at a June 19th news conference:

“If the incoming data are broadly consistent with this forecast [of moderate improvement in the economy], the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year…[and] we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year.” (Italics added.)

Literal-minded traders took that as a definitive statement of the Fed's intentions. Starting on June 19, the Standard & Poor's 500 index tumbled from an intraday high of 1652.45 to a low of 1560.33 on June 24, a drop of 5.5% in just four trading days.

Yields on the benchmark ten-year Treasury note, which have been trending upward since last fall, peaked at 2.7% a couple of weeks ago. They'd gained half a percentage point since the day before the news conference.

Terrified that stocks could—heaven forbid—actually go down, other Fed governors, and Bernanke himself, stepped in to reassure markets. Equities then moved to all-time highs, while a countertrend rally in bonds drove ten-year rates back down to 2.5%.

Actually, the Fed chairman has made similar statements going back to May, and the gist of them is: All things must come to an end and so will QE3. But when it occurs depends strictly on the economy.

Or, as he testified before Congress last week: “I emphasize that, because our asset purchases depend on economic and financial developments, they are by no means on a preset course.”

Next: What could really kill the bull market