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Ben Bernanke tells bulls what they want to hear

Shares are performing close to their best – but any success built on QE rather than sound economic gains cannot last
Ben Bernanke economic committee
Ben Bernanke's statement suggests the prospect of an imminent change of policy by the Federal Reserve is unlikely. Photograph: James Berglie/ZUMA Press/Corbis

Carry on as you were. Ben Bernanke didn't put it like that but the chairman of the Federal Reserve, in his testimony to congress, said nothing to frighten the horses, let alone the bulls now dominating stock markets.

There was a nod to the lobby that wants ultra-loose monetary policy to end sooner rather than later, but that was all. The Fed seeks "economic conditions consistent with sustainably higher interest rates", said Bernanke, but "withdrawing policy accommodation at this juncture would be highly unlikely to produce such conditions".

That's what the bulls wanted to hear. The risk (small anyway) of a sudden change of course by the Fed over the summer is now slightly smaller. The debate is whether quantitative easing in the US will be tapered down towards the end of this year, or from next year. That still leaves time to enjoy the cheap-money party, many may conclude.

And what a party it is. In the US the S&P is at an all-time high. In Britain the FTSE 100 index, despite carrying the weight of lots of plodding miners, is closing in on its own high. Just 90 points to go to surpass the peak of December 1999.

The tale is bound to end badly, one suspects. It always does when it is not built on sound economic gains. The US appears to be recovering, albeit slowly, but the eurozone most certainly isn't – a year of recession is on the cards. And the prices of commodities such as oil and copper, traditional barometers of the pace of global growth, are going sideways. This stock market rally is built on an abundant supply of money.

Everybody knows that, of course – or fears it. But everybody also knows that economic fundamentals and share prices can diverge hugely for long periods. That's what happened in 1998-1999, when it was already obvious that too much capital was chasing the dotcom dream, and in 2007-08, when it took ages for the penny to drop that the banks were rotten. So how long can it last? The cop-out answer is: longer than you think.

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