Wednesday, June 19, 2013

Bernanke pops the bubble

The title to this post may be a bit of an overstatement but not by much.  The FOMC announcement and subsequent press conference at 2:30PM EST sent the markets reeling at the prospect that the Fed will be taking away the punch bowl soon.  All "helicopter Ben" had to say was that tapering of asset purchases were possible later this year, with QE (quantitative easing) purchases ending around the middle of next year. 

Here's a five minute chart of the Dow Jones Industrial Average.  I highlighted when the Fed chairman started speaking:

(click on chart for larger image)
 
Gold also took a bath at the prospect that the punch bowl is being taken away while disinflationary pressures persist.  I won't post that chart as it is equally as ugly!
 
 
Bottom line, this was all done by design.  The Fed knows asset bubbles are forming.  We'll see now whether the market can continue its bull run while bearing the threat that it's "training wheels" are being taken away.  My bet is that it will eventually take this in stride ...