Wednesday, June 19, 2013

Economy/Stock Market: QE3 - Welcome Tapering

(Drivebycuriosity) - Today the Dow Jones fell around 200 points, S&P 500 and Nasdaq each lost around 1.2%. The selling started point 2.15 pm U.S. Eastern Time as the U.S. Federal Reserve had announced her policy decision. According to the media Federal Reserve chairman Ben Bernanke said that the central bank may reduce the pace of bond buying (monthly $85 billion), known as QE3, later this year as economic risks subside (reuters marketwatch bloomberg). He also announced that this stimulus program could end around the middle of next year. According to the Financial Times this was the firmest timeline yet for the so-called tapering.

I reckon that today´s stock market drop was just a short lived response. It seems that hedge funds and other gamblers with a very short time horizon took some money from the table. They responded like junkies, but being an investor with a long time horizon I welcome the tapering announcement.

I believe that the rally will resume soon because the run is driven by rising company profits (thanks to efficiency gains) and a healing economy. The tapering announcement, which was very moderate, demonstrates that the Federal Reserve Bank is getting more optimistic. Rightly so, the economy is now driven by a sustainable upswing. The home market is coming back, weekly jobless claims are continuing their trend south and retail sales are growing with a solid pace.

Hence massive stimulating measures aren´t necessary anymore and could lead to an overheating in the future. The tapering should also keep the commodity speculation at bay which is running on cheap credits and speculations on a return of inflation as an alleged result of QE3.

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