Trader Talk

In pricey dinners, Bernanke tells investors to feast on bonds

Ben Bernanke addresses the Brookings Institution on Jan. 16.
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The big story passed around over the weekend was from Reuters was about former Federal Reserve Chair Ben Bernanke. The story noted that, in a with wealthy private investors, Bernanke made it very clear that below-normal interest rates were going to be around for a very long time.

That's news? Hardly. But the comment that got everyone going was from an unnamed source who had spoken to an unnamed guest. This person conveyed the impression that Bernanke does not expect the fed funds rates, the Fed's benchmark interest rate, to move back to its 4 percent average in Bernanke's lifetime.

This was the big headline. Yet put it in context: an unnamed source had spoken to an unnamed guest at one of the events who had an "impression" about what Bernanke was conveying. The facts don't get much further from a story than that.

The implication is that Bernanke gave a strong hint that the right trade was to buy Treasuries, not sell them. That was the trade going into 2014, and that he somehow told his "private" dinner guests something he has not told everyone else publicly.

Really? This is an indication of what has been called "the paranoid strain" in American politics: dark forces are at work manipulating events that we do not understand. So this has now become one other reason why bond yields moved down last week: Bernanke has been whispering to rich people to buy bonds.

Nonsense. What Bernanke seems to be doing is asserting—perhaps more forcibly than while he was at the Fed—that the economy still has a lot of slack, and might for a very long time. Hedge fund managers, most of whom have underperformed the market this year and have been caught just as flat-footed as everyone else by the rise in bond yields, were made to seem surprised by Bernanke's comments.

They shouldn't be. Bernanke is speaking today in Dallas. He'll be talking at a conference examining central bank's impact on prosperity. The heads of the Dallas and San Francisco Fed will be there as well.


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