What will happen if Bernanke is fired?

Even if you hate the guy, you want Bernanke to keep his job -- the bull market just might be hinging on his reconfirmation.

By InvestorPlace Jan 26, 2010 1:31PM

InvestorPlaceBy Jim Woods, InvestorPlace.com


It's become quite a clichéd phrase that "Wall Street hates uncertainty," but this oft-cited proclamation can indeed be true in many cases.


One such case is the kerfuffle surrounding the confirmation of Federal Reserve Chairman Ben Bernanke to a second term. The Fed chief's current term officially ends on Sunday, and this week the Senate votes thumbs up or thumbs down on his future as the head of the nation's central bank. 


Last week, several Senators -- both Republicans and Democrats -- announced their opposition to Bernanke's confirmation. Many traders saw this as a sign that the Fed Chairman might not keep his job. They also saw this as a great reason to take their bets off the table, and they did so to the tune of over 550 Dow points from last Tuesday's high to last Friday’s low.


Monday we had a different story emerge on the Bernanke front, as several Senate Republican and Democratic leaders announced their support for the Fed chairman's confirmation. As of Monday afternoon, The Wall Street Journal reported that 35 Senators were publicly committed to voting for Mr. Bernanke, with 17 opposed.


The market seemed to like the tide in Washington suggesting Bernanke will, in fact, be confirmed for a second term. Stocks were up nearly across the board in Monday trade, and many on the Street cited the news of Bernanke's likely confirmation as the reason for the buying.


In the short run, the confirmation of Bernanke to a second term will be settling to the market. The reason why, of course, is because of that aforementioned cliché that Wall Street hates uncertainty. No matter how well or how poorly traders think Bernanke's policies have been, they all agree that if Big Ben remains in control of the Fed, a big shift in interest rate and monetary policy isn't very likely. 


If you agree with the Fed chairman's stewardship of the economy, and particularly his handling of the "Great Recession," you want to see Bernanke get another term on philosophic grounds. But even if you oppose Bernanke's slashing of interest rates to nearly zero, and the Fed’s increased portfolio of loans and securities to $2.2 trillion from $800 billion, and of course, those Wall Street bail outs, as a trader you'll likely subscribe to the premise that the devil you know is better than the devil you don't.


If the tide continues washing ashore in favor of the Bernanke confirmation, there will be one less element of uncertainty capable of moving stocks lower. If, however, in the next several days we see a change in the likelihood that Bernanke will be confirmed, look out below. Traders will seek shelter in droves, and that could spell bad news for the bulls.


Related Articles:

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

125 rated 1
267 rated 2
455 rated 3
612 rated 4
682 rated 5
695 rated 6
632 rated 7
472 rated 8
279 rated 9
147 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.