Bernanke speaks, market overreacts, what's new?

Fed Chairman Ben Bernanke just about said everything that he could say to sooth market fears yesterday, but as usual the market reacted in its knee-jerk way with a little sell off, the excuse being that he probably wasn't as certain with his response as they would like him to be and there is still this remarkable fear that tapering will come sooner than the market wants.

However, given the great unknown experiment that is going on with QE and the monthly bond buying, how could he be certain than to say that it is data dependent?

The Fed has said it would keep rates close to zero so long as the jobless rate, now at 7.6%, was above its 6.5% threshold.

And the Fed chairman stressed the bank won't start to hike rates even once its economic targets are met. He said the bank has to be convinced the economic recovery is on a solid upward path before it starts to pull back.

“Our policy is in no way predetermined,” Bernanke said. “Our policies are tied to what’s going on in the economy.”

Indeed, 14 of the 15 Fed members don’t expect the first rate hike until 2015, according to the bank statement.

“The Fed is in no hurry to remove monetary accommodation, but as the downside risk to the U.S. economy and labor market diminish, the rationale for maintaining emergency quantitative-easing measures becomes harder to justify,” said Scott Anderson, chief economist of Bank of the West.

http://www.marketwatch.com/story/fed-much-more-upbeat-about-outlook-2013-06-19

So, basically this gives the market what they wanted. If the economy does improve then QE cannot go on as the risks for real inflation become deeper. Surely the market wants an improved economy? Or does it just want an endless supply of newly printed money every month because that is easier? Fair enough the market had gone up in the 2 previous sessions, so the sell off was probably an excuse for quick profit taking. Sometimes any excuse will do, but sooner or later the market will have to learn to live without the Central Banks intervening in this way and if the economy is supposedly improving then what is the problem for the market?

In the meantime, with the markets going down it doesn't alter the fact that many companies are still producing good results.


Today Dixons announced a pretty impressive set of results a long way ahead of market expectations, recovery does appear to be well underway for them.

Ashtead Group also announced some pretty good numbers.

So, today and the days to come might be a time for looking for bargains, noting any good companies producing the goods, perhaps paying consistently good dividends way ahead of any savings IR you can get at the bank, who have suddenly seen their share price take a dive because of market sentiment. As always there is a need to be careful and to look at the charts to see if a longer downward trend is finally in place or not. Buying into a downtrend, even for good companies where it might be purely a technical move, isn't worth doing as the chances are they will get cheaper. Patience to wait for the certainty of a longer term uptrend is what's needed.

Update:

Big falls today, you'd be forgiven for thinking that the Fed had stopped QE as of yesterday. Market does like to overreact.

Ashtead group and Dixons are two of just a few that so far today have managed to gain. Dixons now pulling back, but produced a very good statement which going forward might suggest that their upward trend will continue.