“By doing the only thing he can do in these ‘unusually uncertain’ times which is to assure investors that the Fed will step in and ‘provide additional accommodation’ if the outlook should deteriorate, Mr. Bernanke has convinced investors he’s holding a royal flush. And because investors are choosing to believe his bluff and that another round of quantitative easing will be launched to stimulate a slow economy if needed, investors are doing Mr. Bernanke’s bidding for him.”
— Abigail Doolittle, founder, Peak Theories Research
The short version is that Tepper said he is bullish on risk assets because either the economy will recover on its own or the Fed will step in with another round of quantitative easing that is sure to push up prices.
Tepper’s voice carries weight because he’s one of the hottest hedge fund managers out there during an otherwise lousy year for the industry.
I highlight Doolittle’s comments not because they were in reaction to Tepper’s, but because they actually preceded his “Squawk Box” appearance and seemed to reflect the same sentiment but with a dose of healthy skepticism. That, and because Doolittle, in her Weekly Peak newsletter, casts a level of aspersion common to what I’ve heard often in the past few days. The question is, What if Ben Bernanke throws a party and nobody shows up?
Is Bernanke merely bluffing, as Doolittle suggests? Gluskin Sheff’s David Rosenberg seems to think so, doubting this morning if QE2 can succeed where QE1 failed.
And it’s hard to discern from market behavior, with the S&P 500 up only a couple of points overall since last Tuesday’s Fed statement, despite Friday’s surge.
You’d think that if the market’s view was in line with Tepper’s, the previous session’s rally would have carried over to today.
Hardly a ringing endorsement for a royal flush.
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