Who will take over the Federal Reserve?

The man we all have to thank for the wonderful stock-market rally since 2008 – Federal Reserve Chairman Ben Bernanke – will leave the Fed at the end of the year.

His willingness to bring interest rates to zero and print trillions of dollars has boosted asset classes across the board. The S&P 500 hit an all-time high last week. But with his looming departure, will this artificial rally last?

 The folks in line to potentially replace Bernanke are Janet Yellen (vice chair of the Federal Reserve Board of Governors), Larry Summers (former Harvard president and Treasury secretary under President Clinton), and Donald Kohn (a 40-year veteran of the Federal Reserve).

All three candidates are government cronies… products of the system. And we have no doubt that all three candidates would carry forward with Bernanke's quantitative-easing policies. These folks still believe ever-expanding debt is the way to save an economy.

We disagree… While inflated asset prices feel good in the short term, we know how this story ends.

 In today's edition of his e-letter Diary of a Rogue Economist, Bill Bonner weighed in on the candidates to take the Fed's top spot. And it's priceless…

Bill, if you're not familiar, is the founder of Agora Inc. – the parent company to Stansberry & Associates. He's also a mentor to S&A founder Porter Stansberry. After decades in this business, we still consider Bill one of the sharpest wits in financial publishing. We hope you enjoy this excerpt from his most recent piece:

The worst of these candidates is Larry Summers. That is why he is most likely to get the post. Summers is so often described as "brilliant" that we are beginning to wonder about the word itself. Perhaps it's coming to mean something else. Maybe "brilliant" is coming to mean "not quite bright," which would better describe Larry Summers. He is the Tom Friedman of the financial world – always sure of himself, always with an answer to every problem… and always mildly retarded…

 Bill finishes his piece by nominating a "dark-horse" candidate to lead the Fed…

We alone among the candidates have the qualities needed to avoid the financial disaster coming our way. We alone understand the proper and modest role of central banking. And we have our plan of action already worked out. Immediately renounce President Nixon's currency system. Put in place in 1971, it is now living on borrowed time and borrowed money. Fix the dollar to gold at the present gold price. Stop [quantitative easing], [zero interest-rate policy] and all other attempts to manipulate prices, interest rates, and markets. We will not be swayed from our course by political pressure. (Not that we are high-minded in any way. We just don't give a damn.) That is, we wouldn't wait for Humpty Dumpty to get higher up on the wall. We'd give him a push. Get it over with.

Bill's Diary of a Rogue Economist is one of the few non-S&A pieces we read every day. We'd encourage you to sign up to receive his free daily e-mail here…

 In another sign we're approaching the bottom in gold… Gold miners are starting to hedge their production again. To hedge, a miner simply sells its future production at locked-in, current prices. It's a way to protect the company from price decreases.

"We're seeing more genuine hedging in gold than we have for some time," Martyn Whitehead, Barclays' head of metals and mining sales, told the Financial Times. The newspaper also quoted a recent note from French investment bank Société Générale to clients, saying miners were "queuing [up] to bullion banks to discuss short-term hedging arrangements."

 If history is any indicator, miners' hedging activity happens at the exact wrong times. Take a look at this 20-year price chart of gold…

 
As you can see in the chart above, miners started hedging production in the late 1990s, just before a massive bull market in the metal. And they cut their hedges to almost zero in 2011, right around peak gold prices.

Even the gold experts aren't immune to gut-wrenching price declines and euphoria at record-high prices.

We're still early on this trend, but it's worth noting… "In the last three to six months, we have seen more hedging activity in gold than we've seen in the last three to five years," Whitehead said. "I would estimate 1.5 [million] to 2 million ounces have been hedged globally."

 In the July 31 Digest Premium, Porter shared his thoughts on hedge-fund manager Bill Ackman. Ackman has made headlines recently for his very public short sale of the multilevel-marketing supplement company, Herbalife. Ackman sold short $1 billion in shares… And he's down around 60% on the position.

Ackman also recently announced that he has raised more than $2 billion to buy shares of Air Products & Chemicals, the world's largest supplier of hydrogen and helium. He wouldn't tell investors which stock he was buying while raising the funds.

The last time he did this was in 2007. He raised money to buy shares in national retailer Target. And investors lost 90%. InDigest Premium, Porter called out what he saw as Ackman's hypocrisy…

[Ackman] made a big deal about the supposed ethical shortcomings of a company called Herbalife. He pointed a finger at the folks who run Herbalife and called the business a pyramid scheme. He made fun of the fact that it sells lotions and potions in a network-marketing arrangement. I felt like Ackman's stand involved some ethical posturing. He was holding himself out as a moral judge of another man's business. That really bothered me. I don't like people like that. And I wouldn't do business with them, either. It's troubling that Ackman can so easily point a finger at Herbalife and say, "I don't approve of these people. And I'm going to try to hurt their business interests by publicizing the things I don't like"… that he can trash the company publicly simply in an attempt to make money as a short-seller. Yes, I'm aware he's donating any profits to charity… but that's beside the point. In the meantime, Ackman has the gumption to do something preposterous… raise money from people (who really should know better) to buy a single stock.

 Ackman's Herbalife pains continued last Wednesday… The stock soared to new highs after investing legend George Soros took a large position in the company.

Now, Ackman is petitioning the Securities and Exchange Commission to investigate Soros for allegedly breaking insider-trading rules by letting other hedge funds know about his Herbalife position… Ackman says he hasn't covered any of his shorts. Meanwhile, he's engaged in public battles with Carl Icahn, Dan Loeb, and George Soros… three heavyweight fund managers who are all long the stock.