David McAlvany to Moneynews: ‘Bernanke’s Done Virtually Nothing’ to Stimulate Economy

Wednesday, 03 Apr 2013 07:20 AM

By Dan Weil and Kathleen Walter

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Federal Reserve Chairman Ben Bernanke has “done virtually nothing in terms of stimulating the economy,” says David McAlvany, CEO of McAlvany Financial.

“He’s done a tremendous amount to stimulate asset prices, and you see that reflected in many of the world stock markets, particularly ours,” McAlvany says in an exclusive interview with Newsmax TV.

But the U.S. market is trading on the basis of the Fed’s stimulus, not of the economy and earnings. “If you do a sampling of CEOs across the country you will find a very dark picture,” he explains.

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“If you look at insider selling, it’s been very aggressive for the last six to nine months, indicating that insiders in corporate America don’t see a bright tomorrow. So what is driving asset prices? It is cheap money from the Fed.”

McAlvany doesn’t believe stocks have exited the secular bear market that began in 2000. This is merely a cyclical bull market, he maintains.

“The question is what drives us beyond these points?” he asks. “Again funny money can take prices considerably higher, but you are at this point playing a greater fool theory where you buy in to today’s prices,” where you’re essentially hoping someone steps in to bail you out from a fundamentally unsound trade at considerably higher prices.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Another bearish factor for stocks: total margin debt is well over $330 billion, close to record highs.

“Looking at the cyclically adjusted price-earnings [PE] multiple for the S&P 500, you can expect 2 to 3 percent returns over the next decade,” McAlvany states. “That’s not in my mind what represents value or an equitable risk-reward equation.”

However, he notes, there are some stocks within this vulnerable market that can thrive.

“One sector that is very undervalued would be the mining sector,” he says. “When you look at current prices say of copper, your major miners around the world are mining that particular asset at a very cheap price compared to what you’re getting for it in the marketplace.”

The same is true for gold and silver. “These are companies that today are making very good money and are selling in single digit PEs,” McAlvany states. Small gains for the metal prices could mean big gains for the stocks.

Regarding the Cyprus bailout, which involves losses for bank depositors, he explains that it puts the safety of deposits open to question anywhere in the world.

“If I’m at the top of the food chain in terms of secure deposits and that’s essentially been turned upside down and inside out, how do I feel about having deposits, or certainly large deposits, in any bank or financial institution?” he asks in an interview with Newsmax TV.

“I thought it was my capital, maybe it’s not. That’s the kind of insecurity the market can’t deal with.”

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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