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Bernanke Built It, But They Did Not Come


Zero interest rates and the creation of new dollars hasn't made people spend.


This week's review comes to you in a shortened format as I don't have access to my normal research resources while on the road in Europe. Although very little commentary is provided, a full dose of excerpts from interesting news items and quotes from market commentators is included.

While the Dow Jones Industrial Index and other benchmark indices reached 52-week highs last week and pleased Wall Street, worrisome economic issues remained in Main Street .

The past week's performance of the major asset classes is summarized by the chart below -- a mixed bag, so to speak, with government bonds, equities, corporate bonds, and gold closing the week in positive territory.

A summary of the movements of major global stock markets for the past week and various other measurement periods is given in the table below. With the exception of only a few indices -- notably the Japanese Nikkei Dow that recorded a third consecutive down week -- most global stock markets made headway last week, adding to the gains for the month.

Top performers among stock markets this week were Romania (+8.1%), Russia (+6.1%), Jamaica (+6.1%), Hungary (+5.2%), and Israel (+5.2%). At the bottom end of the performance rankings countries included Latvia ( 5.1%), Cyprus (-4.4%), Greece (-4.2%), Serbia (-4.0%), and Kuwait ( 3.8%).

Of the 99 stock markets I keep on my radar screen, 66% recorded gains (last week 52%), 31% (43%) showed losses, and 3% (5%) remained unchanged. (Click here to access a complete list of global stock market movements, as supplied by Emerginvest.)

John Nyaradi (Wall Street Sector Selector) reports that, as far as exchange-traded funds (ETFs) are concerned, the winners for the week included PowerShares Global Coal (PKOL) (+7.6%), iShares Cohen & Steers Realty Majors (ICF) (+7.4%), Vanguard REIT (VNQ) (+6.4%) and Market Vectors Russia (RSX) (+6.4%).

At the bottom end of the performance rankings, ETFs included United States Natural Gas (UNG) (-4.9%), ProShares Short Emerging Markets (EUM) (-3.7%), ProShares Short QQQ (PSQ) (-3.4%), SPDR Russell/Nomura Small Cap Japan (JSC) (-3.0%), and WisdomTree Japan Small Cap (DFJ) (-2.5%).

Still on the topic of ETFs, Clusterstock reported that investors have been pouring $108 billion into ETFs during the year to date, with $24 billion coming in during the last three months.

Clusterstock said:

"Yet while investors have been pouring money into commodity, fixed income and global equity ETFs, one very important category has remained a complete pariah -- US stocks. Despite the stock market rally ... money has continued to flow out of US equity ETFs. Thus while some might be able to argue that the crowd has jumped into commodities, fixed income and global equities, it's pretty hard to say that investors are in love with stocks again... ."

Referring to the surge in the gold price, the quote du jour this week comes from Richard Russell, 85-year-old author of the Dow Theory Letters. He said:

America's Fed Chairman, Ben Bernanke, is convinced he knows the secret of avoiding hard times. The Fed can halt deflation and turn the picture into asset inflation. All it takes, thinks Bernanke, is zero interest rates and the creation of trillions of new dollars -- and they will come, and they will spend. This is the path the Bernanke Fed has chosen. So far, it has not worked -- they are not coming, and they are not spending. The Fed's strategy has not even succeeded in bringing down unemployment. Bernanke's solution -- more of the same: "Whatever it takes, and as long as it takes."

Thus we have a strange and ironic situation. We have world deflation, and a Fed Chairman who believes he can manipulate the primary trend. Bernanke's strategy is leading to a weakening dollar. The more dollars that are created, the weaker the dollar. As the dollar's very status comes into question, wise and seasoned investors move to protect their wealth. They move to the time-honored "safe haven": the one unit of wealth that cannot be destroyed in that it is not a liability of any government. And, of course, I'm talking about the one unit of wealth that is never questioned -- gold.

So it's the gold bull market that I trust and believe in. I think and I ponder -- what can halt the gold bull market? The only thing that can halt the gold bull market is a complete reversal by the politicians and the Fed, and that would allow the US to sink into a state of deflation and depression. Unthinkable.

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No positions in stocks mentioned.
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