Bernanke Goes Out Like a Wrecking Ball
- Joshua M Brown
- December 18th, 2013
He surprised them all in his last FOMC meeting, exiting his role as Fed chairman with a token taper of just $10 billion from the ongoing $85 billion per month asset purchases (now $75 billion).
This is what I wanted to see (check out Just Do It) and apparently the market’s first reaction was happiness as well (Dow up two hundo as of this posting). The Fed has also gone out of its way to delineate between the taper and any sort of interest rate tightening – and so far the market believes them.
I just searched the term “the fed is trapped” on Google and came up with 39,100 results.
Bernanke wrecked them all.
My working assumption all year has been that the Fed would go slow and that it would be a mistake to think that tapering meant that stocks were doomed. I also thought that the market would react to the taper positively by the time it finally happened. Here’s what I said in May at Forbes (and a million times on TV):
You may think of this as the end of QE but many of us, those with multi-decade time horizons and big dreams for the future, will instead be thinking of this as the beginning of something else. Just as T.S. Eliot would along with all the other bright-eyed opportunists throughout history. “The end is where we start from.”
The bottom line is that the current zero interest rate policy (ZIRP) and the various quantitative easings will be dismantled and undone as slowly and deliberately as they were put on. We’ll not be thrown down face-first atop a wooden table, ravished and thrusted upon by coarse soldiers as a sentry guards the door. No, after all this time I believe that our corset shall be untied gingerly and with care, our hips caressed and our neck dappled with an archipelago of gentle kisses. Bernanke is nothing if not a patient lover, subtle almost to a fault.
To be positioning our portfolios for anything else, regardless of misinterpreted signals, would be to act against all of the evidence we have.
I didn’t think the reaction would be this positive, this suddenly, however.
The return to normalization continues. Full economic recovery is not a slam dunk nor is it a fait accompli (the Fed can’t control fiscal policy, after all). The full exit from QE / ZIRP could take years. But let’s at least acknowledge that this is an important step in the right direction.
Bravo, Ben. Have a drink.
Roses are Red and Dahlia’s are Black We’e buying less bonds but we still got your back. – Happy Holidays from the FOMC
— Downtown Josh Brown (@ReformedBroker) December 18, 2013
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.