Blue Planet says US Federal Reserve board chairman Ben Bernanke’s address to the Jackson Hole meeting made it clear that there will be no cut in the Fed Funds rate in September.
Bernanke says: “It is not the responsibility of the Federal Reserve, nor would it be appropriate, to protect lenders and investors from the consequences of their financial decisions.”
Blue Planet says Bernanke’s views were predictable and reflect the long held view of virtually every central banker in the world. For them the avoidance of “moral hazard” is central to ensuring the stability of banking systems and it is imperative that those who engage in imprudent lending bear the losses that arise from it.
Blue Planet Investment Management CEO Ken Murray says: “Markets have been rising recently in the belief that the Fed is going to cut interest rates. Consequently, there is likely to be a sharp fall in September when they are not cut and the losses that are building in the sub-prime market re-assert themselves.
“Blue Planet has hedged all of their Funds covering between 40 and 55 per cent of all assets. This is in anticipation of the re-emergence of the serious and large losses that are building in the banking and fund industries which are not going to go away quickly, contrary to what some in the market believe.”