The Title Of Bernanke's Graduation Speech Is Eerily Similar To A Really Bullish Book About Stocks

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Ed Yardeni is the President and Chief Investment Strategist of Yardeni Research

Fed Chairman Ben Bernanke seems to agree with my upbeat assessment of the future led by the ongoing high-tech revolution. He signed on to the thesis in a commencement speech on Saturday titled, “Economic Prospects for the Long Run.” That title is eerily similar to that of Jeremy Siegel’s investment textbook (1994), Stocks for the Long Run. His speech is also reminiscent of his predecessor’s cheerleading of the 1990s bull market. Bernanke said that he is optimistic about the long-term prospects for the US economy because he expects that “human innovation and creativity will continue.” He concluded that “historians of science have commented on our collective tendency to overestimate the short-term effects of new technologies while underestimating their longer-term potential.”

In the past, Bernanke explicitly stated that his ultra-easy monetary policy is aimed at driving stock prices higher. Now that they are at record highs, his recent cheerleading could contribute to a melt-up, just as Alan Greenspan did during the second half of the 1990s. We all know how that ended.

Greenspan, who was Fed Chairman from August 1987 to January 2006, was a big believer in the high-tech revolution during the second half of the 1990s. His last major speech about this subject was titled “Technology and the economy,” on January 13, 2000. Just as technology stocks were about to crash, he said: “When we look back at the 1990s, from the perspective of say 2010, the nature of the forces currently in train will have presumably become clearer. We may conceivably conclude from that vantage point that, at the turn of the millennium, the American economy was experiencing a once-in-a-century acceleration of innovation, which propelled forward productivity, output, corporate profits, and stock prices at a pace not seen in generations, if ever.”

Subsequently, Greenspan said that the financial crisis of 2008 was caused by a “once-in-a-century event,” i.e., the Lehman bankruptcy! Let’s hope that Bernanke won’t regret his latest speech.

The S&P 500 is now 6.5% above its previous record high on October 9, 2007. The current bull market seemed to be tracking the previous one (from 2003-2007), raising concerns that 2013 could play out as badly as did 2007. Now the two bull markets are diverging with the current one rising to new highs. It’s much easier now to make the case that the market may be just starting a melt-up, as I discussed last week.

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Today's Morning Briefing: Ahead of Schedule. (1) From 666 to 1667. (2) Symbolists vs. strategists. (3) To Hades and back. (4) Secular bear case is harder to make. (5) Illuminati and Numerati. (6) 666 x 3 = 1998. (7) The BRAINEE Revolution. (8) America will export gas. (9) Flood of federal revenues. (10) Are Obama’s scandals bullish? (11) Bernanke is high on high-tech. (12) So was Greenspan. (13) “Renoir” (+ +). (More for subscribers.)

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Gold Is Getting Slammed Now

Earlier, stocks, gold, and bonds jumped as Federal Reserve Chairman Ben Bernanke delivered a prepared statement during a testimony before the Joint Economic Committee of Congress.

However, it didn't take long for everything to head back down in the other direction when the question was put to Bernanke: could the Federal Reserve begin tapering back its bond purchases by Labor Day?

Bernanke didn't rule it out as a possibility as long as there was enough improvement in the economic data to warrant such action.

This isn't inconsistent with anything that the Fed has said before – bond buying will scale back when the Fed thinks the economy can finally handle less monetary stimulus – but markets took this as an opportunity to sell off.

And gold keeps heading lower. It just edged down a bit more with the release of the minutes from the FOMC's April 30-May 1 monetary policy meeting.

Now, the shiny yellow metal is trading 1.5% lower on the day, at levels around $1357.

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EL-ERIAN: A Simple Change In Brand Perception Is What Destroyed Gold

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Mohamed El-Erian

Gold has been getting hammered lately, and it's down again today.

PIMCO's Mohamed El-Erian discusses it in an FT piece titled We Should Listen To What Gold Is Really Telling Us.

El-Erian's argument is that essentially gold had a brand and it had a story, and that story was that it would inevitably go up, as central banks stimulated more.

But it doesn't take much to change the brand and tell a new story.

While lower inflationary expectations and surging equities played a role, the real catalyst for the dramatic price drop was a rumour that Cyprus could be forced to sell its holdings by its European partners. This involved a tiny amount of gold (valued at less than $1bn at the time), but it made investors suddenly pay attention to the possibility of significant supply hitting the markets from other European economies (particularly Italy with holdings of some $130bn).

This simple change was enough to bring the gold price down 15 per cent in less than a week. Since then, the metal has struggled to re-establish a firm footing, (it is currently trading at about $1,345 a troy ounce).

El-Erian then goes onto liken this to Apple. One moment it's on top of the world, and infallible. And then suddenly the story changes, and people value the company in a completely different way.

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To embed this post, copy the code below and paste into your website or blog. Dr. Mohamed Abdulla El-Erian is the CEO and co-CIO of PIMCO, the world’s largest bond investor with over US$1 trillion of assets under management as of 2010. El-Erian previously worked as the investment manager of Harvard... More »

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Incredible Footage Of China Demolishing Miles Of Elevated Road In Just A Few Seconds

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Enter your email address and zip code to set up customized email alerts.You have successfully emailed the post. Sam Ro | May 20, 2013, 9:38 PM | 500 |

China is about more than massive infrastructure build-outs.

Some things have to come down.

"This was the scene in Wuhan as three-and-a-half kilometers of elevated road came down," wrote Bloomberg about this incredible demolition footage.  "The viaduct was only built in 1997 as part of the main highway between Shanghai and Tibet.

Check out this video from Bloomberg.com:

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6 Things You Can Do To Become A Better Trader

FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.

6 Things Traders Need To Do To Improve Their Consistency (The Kirk Report)

Traders should focus on consistency. To do this, Charles E. Kirk writes that traders need to do six key things. 1. "Have a consistent daily routine." 2. "Adopt and maintain a consistent strategy." 3. "Simplify, simplify and simplify more." 4. "Track what you do everyday." 5. "Flowchart everything." 6. "Set your rules and follow the rules."

Leon Cooperman: 'Everyone Is Moving Up The Risk Curve' (Barron's)

Investors have been chasing yield for some time. Leon Cooperman and Steve Einhorn of Omega Advisors told Barron's that investors are moving up the risk curve. 

What are you seeing as far as investors looking for more yield?
Cooperman: Everyone is in the process of moving up the risk curve. We have an investor who put all of his money in T-bills when he retired, because he didn't want duration risk or credit risk. So for the guy who bought T-bills, he can't get any return anymore, so he migrated to T-bonds. The guy who bought T-bonds has migrated into industrial credits. The buyers of industrial credits have migrated into high yield. The high-yield buyers have migrated into structured credit, where we are now in our credit exposure at Omega, and the structured-credit people are increasingly looking at equities. So everybody is moving up the risk curve.

That helps equities, no doubt?
Einhorn: There is no effective alternative to common stocks and people are getting fatigued sitting on cash earning zero and bonds, which have such unattractive returns.

In Just Two Charts, You'll Understand Why Gold Is Crashing (Credit Suisse)

Gold prices have been taking a hit since April. This is because of 1. A decline in risks from Europe which is proxied by charts showing declining yields on Spanish and Italian 10-year notes, and 2. Normalizing interest rates in the U.S.

Credit Suisse

69% Of Global Investors Think Income Investing Is A Priority (Advisor Perspectives)

Legg Mason's survey of "affluent investors" in North America, Europe and Asia showed that income is a priority for global investors. 69% of global investors said that "that investing in income generating products is an extremely important or important priority. Another 23% say it is at least somewhat important." 80% of investors said they wanted to know more about income investing.

Doug Kass: Here Are My 31 Favorite Books On Investing (Business Insider)

Doug Kass gave us his 31 favorite books on investing. Byron Wein called the reading list "terrific." Some of the titles include 1. "The Most Important Thing" by Howard Marks. 2. "The Money Game" by Adam Smith. 3. "It's Earnings That Count" by Hewitt Heiserman, Jr. 4. "Bailout Nation" by Barry Ritholtz. 5. "The Big Short" by Michael Lewis.

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BofA: A 'New Berlin Wall' Has Been Erected In Europe

Sam Ro | May 20, 2013, 8:58 PM | 787 |

The relative calm in recent weeks belies the huge distortions that continue to plague the global economy and markets.

Michael Hartnett, Bank of America Merrill Lynch's Chief Investment Strategist, recently published a report loaded with unconventional charts intended to communicate how the world is changing.

In a slide titled "The new Berlin Wall," Hartnett presented this chart showing how German bond and stock prices have surged as the young people in Portugal, Italy, Greece, and Spain have suffered.

Many consider this a reflection of how the euro has failed those in its currency bloc.

Bank of America Merrill Lynch

Unfortunately, Hartnett sees a very similar trend within in the U.S. where stock and bond prices have rebounded sharply benefiting the investing class even as increasing numbers of Americans watch from the sidelines.

"Risk is bubbles and Robin Hood policies that curtail the demand and supply of credit," wrote Hartnett.

Bank of America Merrill Lynch

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Marc Faber: The US Can 'Artificially Depress' Prices And Confiscate Your Gold (GLD)

Gold prices continue to take a beating with futures at $1,354 an ounce.

Marc Faber, publisher of The Gloom, Boom and Doom report, told Talking Numbers that he is buying physical gold and will buy more if it hits the $1,300 mark.

But, he said that he isn't keeping it in the U.S. "I bought gold at $1,400, I buy every month some gold, and I have an order to buy more at $1,300 because I want to keep an allocation towards gold – physical gold – and not stored in the United States at all times."

Here he explains why he isn't keeping it in the U.S. via CNBC and Yahoo Finance:

Now you're emphasizing stored outside the U.S.. We're a pretty safe country Marc, why do you have to keep the gold out of here?
Well, safe country? I’m not so sure about that under the present government. But in 1933, gold was taken away from Americans. The government paid them $25 and after, they revalued the gold to $35. So, basically what the government can do once again, and that is a possibility. They could artificially depress, manipulate the price down and then say ‘Gold is illegal to be held. We have to collect all the gold from the citizens.’ Say if they manipulated the price down to $1,000. They could collect it at $1,000 and then revalue to $10,000.

That's possible but do you believe it is probable Marc? That would be a Black Swan kind of event or a cold swan type of an event for you. That's not your base case.
It’s not probable…  Correct. I’m not a believer in the manipulation theory. I’m not a believer in all the conspiracy theories. I’m a believer that the market went down because there was a technical break and also because stocks are so strong. So, when people look at their gold and they look at the stock market that goes up every day, they then decide ‘Gold is dead. Let’s buy stocks’ because, at heart nowadays, everybody is a momentum player. The fund managers who must outperform the index, the hedge fund guys, the high-velocity trading people, the algorithmic people – they’re all momentum players. What moves up, they chase. What moves down, they sell.

Watch the entire interview at CNBC and Yahoo Finance:

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