Bernanke’s intention to print more money in order to buy Treasuries is causing a surge in stocks such as Coca-Cola and McDonald’s, whose global products get cheaper with every devaluation move by the Fed Chief.
Coca-Cola and McDonald’s both hit 52-week highs today as the U.S. dollar plunged on speculation Bernanke’s second round of quantitative easing program will total at least $500 billion and could end up being even more than $1 Trillion.
The math is hard to argue with. Over the last six months, the correlation between these two stocks and a falling dollar has been greater than 0.8. So when the dollar falls on a day, there’s a greater than 80 percent chance these two stocks are going up.
"To the extent that the dollar decline is orderly and ‘manageable’, the companies that generate significant amounts of revenues from overseas marketplaces should outperform," said Dan Greenhaus, chief economic strategist for Miller Tabak & Co.
The problem is that some investors believe that Bernanke’s move to buy more long-dated securities is as crazy as the Fed Chief actually buying the 6.9 billion people in the world a Coke.
"The economic stimulus of QE2 in theory flows through to the real economy through raising asset prices, lowering credit costs and improving U.S. terms of trade through dollar depreciation," said Jeffrey Rosenberg, Bank of America Merrill Lynch credit strategist, in a note last week. But "the costs of further QE2 in the form of raising the risks of asset bubbles – now in emerging markets as opposed to housing – should provide greater ballast against the gusts blowing in the direction of further liquidity provision."
So once again, like the housing bubble and tech bubble before it, the easy money trade of buying companies with high foreign sales, emerging market stocks and high yield bonds will keep working until it suddenly doesn’t, these critics fear. This time it is rampant inflation caused by Bernanke’s attempt to unwind this unprecedented expansion of the Fed’s balance sheet that will cause the house of cards to come tumbling down, they say.
But as Greenhaus points out: "As investors, it is not our job to judge whether this policy is correct or not, but how to profit from it." And for Coca-Cola and the whole market the last three months, it’s been a profitable endeavor.
For the record, Bernanke would need just $8.6 billion ($1.25 multiplied by 6.9 billion) to buy everyone in the world a Coke. So how about he buys everyone 10?
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John Melloy is the Executive Producer of Fast Money. Before joining CNBC, he was an editor for Bloomberg News, overseeing the U.S. Stock Market coverage team