Is there a Bernanke put?

The 1990’s were characterized by the Greenspan put or the belief that the Fed chairman would cut rates in an effort to support the equity markets. Now we have talk of the Bernanke put. It is too early to say whether the put exists as equity markets continue to descend, but we do know that there is a Bernanke shuffle toward lower rates as a way to save the banks.

Make no mistake, the key beneficiaries of the cuts will be banks if we can get a upward sloping yield curve. Unfortunately, a close look at the curve shows that it is more humped with the front-end inverted or at best flat. The LIBOR curve is still inverted. The back-end of the Treasury curve is upward sloped but not overly steep by historical standards. The Bernanke cuts are less about saving the stock market and more about helping banks. The current analogy may be the S&L crisis and not the stock market bubble. Bank capital has been eroded and earnings have to be helped through lowering the cost of borrowing.