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Please Don’t, Mr. Bernanke

It sure seems like the financial markets are praying for a Jackson Hole miracle. Who can blame them? It’d just be another iteration of the “Greenspan Put” that will prevent reality from rearing its head. It’s been a better part of a generation since the Fed has been racing to the rescue. Enough already.

Don’t get me wrong. I’m not wishing for a crash, and I fully believed that the Bush administration’s decision to bail out the banks in 2008 was the right call, even as both Democrats and Republicans, hewing to their respective ideological objections, tried to block the whole effort.

The market solved that dysfunctional impasse with that horrific 777-point drop on Sept. 29, 2008, just as it expressed its disenchantment this month with the much-too-dramatic debt ceiling talks.

The markets will also answer again should Bernanke choose not to roll out another round of quantitative easing on Friday—probably in the form of a sharp sell-off. But it’s not 2008 anymore, not the least because policymakers around the world won’t allow another Lehman Brothers-like collapse to unfold.

So, it’s high time we stop denying the nature of our economic problems in the United States. What does this mean? Unless you’re from Dallas or elsewhere in Texas, we can probably start by admitting that the residential real estate market is still overvalued, as recent Case-Shiller home price data seem to be clearly suggesting.

I ought to be careful saying that, as I could end up under water with a mortgage I took out in 2006. But when I talk to smart, well-educated people in their 20s and 30s with jobs—yes, I said with jobs, and good ones at that—who say they can’t really afford to buy a home, it just about breaks my heart. The young are our future, and we’re killing their dreams with all this artificial life support from the Fed in the form of more quantitative easing.

I realize more foreclosures wouldn’t be pretty for individuals or financial institutions, but come on. The U.S. financial sector is seriously impaired already, Warren Buffett’s recent $5 billion investment in Bank of America notwithstanding. Banks just don’t have enough extra capital to loan to all the entrepreneurs who know that the best time to launch a business is now, when the economy is ailing.

It would be nice to see what’s lurking on the balance sheets at BofA or even Citigroup.

I’m willing to bet that if we knew those secrets, the bottom in this painful and momentous economic downturn would be in—and in short order. But, absent that sort of transparency, let’s look at what the market thinks.

Bank of America got a 15 percent shot in the arm from Buffett, but the stock is still only worth about $8.

And Citi had to resort to the Kabuki of a 1-for-10 reverse stock split in March to pump its shares up to as high as $50 early this year. It’s now down to around $30 or, if you look at it on a presplit basis, that’s $3 a share. Dead in the water, in other words.

So what does all this mean for ETF investors?

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ETF Coping Tools

I’ll leave the more granular parsing of various securities to my esteemed colleagues in San Francisco, but I will say that it wouldn’t be a bad idea to steer clear of ETFs that canvass the financial sector as we wait for the next era of global capitalism to fully take shape—hopefully with the Fed expediting the transition.

Other than that, I’d say stick to your knitting. That means owning solid, dividend-paying companies that do a lot of their business outside of the U.S., via funds such as the Vanguard Dividend Appreciation ETF (NYSEArca:VIG).

Also, remember that recessions are a time of great shifts, and plenty is changing on planet Earth. Think of the rise of new markets and the booming demand for oil and other commodities that are accompanying that growth. It also seems clear that the dollar is in a secular decline, even though Treasurys remain wildly popular every time the stock market tanks.

I’m definitely with people like Burton Malkiel who argue that the China story and others in the emerging markets are here to stay. So funds like the Schwab Emerging Markets Equity ETF (NYSEArca:SCHE) make a whole lot of sense, whatever setbacks the developing markets encounter in the nearer term.

Funds like the WisdomTree Emerging Markets Local Debt Fund (NYSEArca:ELD) are another way for U.S. investors to get exposure to the developing world and benefit from any weakening of the dollar against a host of other currencies.

And, if you want some of the laser beam focus that the ETF industry has become famous for, why not explore a single-country security like the iShares MSCI Turkey Investable Market Index Fund (NYSEArca:TUR)?

The energy and commodities story is also one to get behind.

Oil prices are definitely heading higher and funds like the PowerShares DB Oil Fund (NYSEArca:DBO) are a great way to hop on that train, all the more so because they’re designed to profit in difficult-to-navigate futures markets.

And, to the extent that oil is getting harder to find, ETFs like the First Trust ISE-Revere Natural Gas Index Fund (NYSEArca:FCG) seem like a great way to take part in the massive transition to gas that’s already taking place.

A Bullish Blogger

Lest I leave readers with a sense that I’m too dour for my own good, let me make it plain:I’m massively bullish on the United States of America. We’re living through a difficult period, but I part ways with soothsayers of doom in a heartbeat.

I hear people like George Friedman say there’s no other country on the planet with the geographic bounty of America, and it’s music to my ears. Add to that the zeal and industriousness of immigrants and it’s clear we still have a winning formula.

I thank the fact that my parents immigrated here from Western Europe in the 1950s every day.

I, and I’m sure countless entrepreneurs who are toiling in their garages and laboratories designing the next generation’s cutting-edge technologies, know we’ll get through this period.

I just hope Ben Bernanke and his colleagues at the Fed don’t slow that process down by leaving us on life support any longer.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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