What Bernanke's Testimony Means

The stock market is at all-time highs,but markets tend to seize on what they want to hear and run with it.A case in point is Federal Reserve Chairman Ben Bernanke's testimony before Congress last week,which was assessed by Mohmamed El-Erian,CEO of leading asset manager PIMCO.This testimony is rather dovish,Mr.El-Erian said.Bernanke was saying that 1.The unemployment situation is unsatisfactory.2.Don't worry about inflation;it is too low.3.We have a number of instruments we can use. He's trying to strike a difficult balance between confidence and excessive risk-taking.The journey is full of ifs.The market extrapolates this to the destination.Markets are different from the Fed.They want to know where we are going,and when we're going to get there.1.The unaddressed cost and risk of unconventional policies.2.You've convinced other central banks to follow you,but does it make sense if everybody does it? The underlying economy is still fragile.The fundamentals with the technicals would call for lower yields from here.1.The real economy is weak.2.Banks have reduced risk exposure,so their ability to earn is less.It will be interesting to see how sustainable their earnings are. Mr.El-Erian,who formerly managed the Harvard endowment, is also co-Chief Investment Officer of PIMCO,along with founder Bill Gross.

The Outlook For Gold

Central banks turned net purchasers of gold in 2010,and that trend has continued,said Natalie Dempster of the World Gold Council.Stimulative policies are pushing investors into gold,along with the fiscal cliff.Concerns over credit have stopped the trend of investing in eurobonds.
Strong economic growth has been underpinning jewelry and central bank gold reserves demand from countries such asThailand and Russia.It's really been very broad-based.
At the moment,gold is a very good inflation hedge.It's a much better diversifier than other commodities because they are linked to industrial applications.
Monday New York gold closed at 1728.80 an ounce.