These 5 Companies will Gain from the Bernanke Put
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Major US exporters such as Boeing (NYSE: BA), Caterpillar (NYSE: CAT), DuPont (NYSE: DD), Dow Chemical (NYSE: DOW) and Peabody Energy (NYSE: BTU) could all gain substantially when Federal Reserve Chairman Ben Bernanke strides to the podium at the economic policy summit in late August at Jackson Hole, Wyoming.
At the economic policy summit at Jackson Hole in August 2010, Bernanke introduced Quantitative Easing 2. That consisted of the Federal Reserve expanding its balance sheet to purchase $700 billion in US Treasury Bonds from November 2010 through June 2011. Bernanke has stated that a low interest rate environment would be maintained until at least 2014. As no other buyers could be found for the US Treasury Bonds at such low interest rates, the Federal Reserve became the buyer of last resort.
From QE2, the US Dollar fell greatly in value due to the Bernanke Put of flooding the market with the paper assets. Investors fled the Greenback for the safety of hard assets, such as gold and silver, which rose significantly over that period. Also increasing in value were the share prices of American companies that exported as the falling US Dollar made goods priced in American currency that much cheaper in foreign markets.
With economic growth in the second quarter falling to 1.5 percent for the United States, more stimulus measures from the Federal Reserve are likely. There have been many reports in The Wall Street Journal and throughout the media about Federal Reserve board members unhappy with economic growth in the United States and wanting more action. The stock market rose last week in anticipation of such measures. The economic policy summit in Jackson Hole would certainly be an appropriate venue for Bernanke to announce Quantitative Easing 3.
Almost certain to gain should this happen would be Boeing, the airplane maker, which is the biggest exporter in the United States. During the period of QE2, Boeing rose from about $60 a share to over $80. At present, Boeing is around $75.50.
The largest exporter of coal, Peabody Energy, almost doubled from around $36 to over $70 a share over that same time span. Peabody Energy now trades for around $21.00. While coal usage is falling in the United States due to a switch to natural gas by electric utilities, exports are increasing. Market Vectors Coal, the exchange traded fund, rose more than 50%, too, as a result of QE2 and more exports abroad.
Nobody makes more heavy equipment than Caterpillar. Caterpillar doubled from around $60 to about $120 during QE2. The major export market for tractors and other machinery from The Big Cat is China, where it expects its number of employees to double.
Chemicals are one of the fastest growing American exports. Dow Chemical and Dupont are two of the biggest chemical companies in the world. For the time span of QE2, Dow Chemical increased from about $25 a share to around $40. Over that same period, Dupont rose from under $35 to over $55 a share.
As a result of QE2, the US Dollar fell sharply in value. That resulted in a huge pricing advantage for American exports. It is ironic that the US Government always accuses China of manipulating its currency when QE2 drastically reduced the Greenback in value, rendering a significant pricing edge to American companies.
QE2 helped US companies recover from The Great Recession. The market bottom for stocks was March 2009 and, as a result of QE2, many subsequently soared. From March 2009 to early 2011, the stock market doubled. Leading the stampede of bulls were Dow Jones Industrial average members such as Boeing, Caterpillar and Dupont that are also major exporters. Further economic stimulus measures such as Quantitative Easing 3 that lower the US Dollar in value will greatly aid the exports of these companies...again.
Fool blogger Jonathan Yates does not own any of the stocks mentioned in this article. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.