Graham vs Bernanke
Over this past weekend a close friend of mine that works for the Federal government asked me the following question referencing an article written in the Wall Street Journal last week titled, “Investment Strategy: All About the Benjamins.” to read the article go to this link
http://online.wsj.com/article/SB10001424052748704425804576220983131318962.html
“David” - What’s your take on the attached article recently published in the Wall Street Journal?
My response:
I am at Yale University at a conference, and this article came up yesterday at one of the breakout sessions.
I read the article prior to the conference, and the author makes some excellent points. In fairness to Bernanke, he was faced with one of the worst economic situations this country has ever faced since World War II. He is an expert on the Great Depression (read his PhD dissertation), and I believe his unwavering leadership during the financial crisis was absolutely necessary given the grave circumstances the nation was facing.
That being said, Bernanke believes that the way you emerge from a 'demand side' recession is through massive quantitative easing and near-zero interest rates, which in theory should force investors to take more risk driving up asset valuations. This is exactly what is happening with the current stock market (hence the 100% rise in the S&P 500 since the market low of March of 2009), but corporations and affluent investors are still not spending their discretionary cash. Instead they are hoarding it, because they believe the run up in asset appreciation is temporary. This is a problem.
Graham on the other hand, is the father of value investing. If he were alive today, he would not be a buyer of stocks based on the current market valuation. However, Graham has never been faced with dictating monetary policy like Bernanke. Therefore, it is not a fair comparison to compare and contrast 'Ben vs. Ben'.
If I had to choose who to ask for investment advise...it would be Graham.
