President Bush has been in office slightly over six years now and Dr. Ben Bernanke has been Chairman of the Federal Reserve for 14 months. Mr. Bush has been wallowing in historically low approval ratings for many months while Dr. Bernanke has received relatively good marks so far. Currently Mr. Bush is trying to win a war in Iraq and Dr. Bernanke is engaged in steering the economy to a "soft landing" in a "Goldilocks" environment. Victory in Iraq and a "soft landing" are dreams yet to come true, but the "Goldilocks" environment is here, right now. Nothing could be better for stock prices. U.S. stocks are greatly undervalued and their prices should be soaring. Yet, the U.S. stock market has been one of the poorest performers in the world. What is the problem?

Investor fear and uncertainty. Nothing stifles a stock market like fear and uncertainty. I addressed the issue of fear last year in my essay, "A Fear Index," dated March 17, 2006. As noted in that essay, "I believe stocks are so undervalued in this country because investors lack confidence in our leadership. History tells me that (Earnings Yield), EY, goes above (Interest Yield), IY, when things are not going well. So the ratio of earnings yield to interest yield is, in fact, a Fear Index." Indeed, little has improved for Mr. Bush over the past year and EY/IY currently stands at 1.16, which means that investors are still fearful.

Although Dr. Bernanke was welcomed to his job as Head of the Fed and was expected to bring clarity to the Fed's monetary policies, uncertainty has been the name of the game. He got into hot water a year ago when he explained to Ms. Maria Bartiromo that he had not turned dovish on inflation. Again, this week, in Congressional testimony he explained to the Joint Economic Counsel what the most recent FOMC statement was meant to convey. The next day he had to explain to the press what he explained to Congress. But that's only the half of it.

Dr. Bernanke elected to let the data drive his decisions. That's fine, but he's always waiting for more data. His job is to analyze the data he has, decide what he needs to do and communicate his policy to the public. He has to act decisive whether he is or not. Waiting for more data conveys indecision and that begets uncertainty. See my essay of August 11, 2006, "The Last Data Point." I concluded that essay by saying, "uncertainty and a bumpy market will rule the roost as long as we have an indecisive Fed." Did I say bumpy? That's the hallmark of The Bush/Bernanke Market.

VECTORVEST U.K.
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