TUESDAY JULY 21, 2009

Trust Me!

This morning, Federal Reserve Chairman, Ben Bernanke, wrote an article in the Wall Street Journal that puts forth the Fed’s “exit strategy.” Mr. Bernanke will testify before Congress today as well. In the article, the chairman notes, and I agree, that there is little chance of inflation in the near term. However, the market’s inflationary concern is longer term. The amount of money injected into the economy to resuscitate it was massive, necessary and unprecedented. How and when that money is drained from the system is the cause for worry. If the Fed waits too long, inflation will likely be the result. Mr. Bernanke speaks to several of the “tools” at the Fed’s disposal.

 

But ultimately, this is a matter of trust. The markets have to believe the Fed will get the timing right. And, the markets have some recent history with this matter. In 2002, we had a highly regarded Fed Chairman reassure us that the Fed was on the watch. With the benefit of hindsight, that Fed left rates too low for too long and is widely blamed for the real estate bubble that led to the economic crisis. Alan Greenspan’s name went from Maestro to mud in record speed! So, today, Mr. Bernanke is suffering from the sins of Feds past. He is saying trust me, but the markets are going to remain skeptical.

POSTED AT 1899-12-30 09:38:00.0

KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES

Ken is a Senior Vice President and the Director of the Trust and Investment Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.

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The opinions expressed here do not represent the views of Alliance Financial Corporation and Alliance Bank, N.A. This communication is not an offer or solicitation for the purchase or sale of any security, is for general informational purposes only and does not provide personalized investment advice. When making personal investment decisions you should consult your investment adviser or rely on your own research. Copyright 2008.