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QE Tapering - Ben Bernanke Plays It Perfectly.......

Stock-Markets / Stock Markets 2013 Dec 19, 2013 - 09:24 AM GMT

By: Jack_Steiman


The uncertainty of what big bad Ben would do was put behind us at 2:00 PM Eastern Time today. He played his cards perfectly. Think about it. It was time to taper, but would he was the real question. It wouldn't be good for his legacy to have a new Fed come in and be the one to have to do the dirty deed of unwinding the liquidity fix. It made sense for him to go out with a small tapering program in place. Not too much, but something.

To do nothing when things are getting better wouldn't be a good thing to do. It would send up a red flag that things are only getting better as long as he's pumping. That may be true, but he couldn't leave that message with Wall Street. When Yellen comes in she can now continue the process of unwinding without being made to look like the bad girl. Mr. Bernanke did a 10-billion per-month taper by taking 5 billion out of mortgage backed securities and 5 billion from treasuries. This number will be going up slowly, but gradually over the next year or two. He played a perfect game today and the market loved it. More on that coming up.

Two o'clock. Stomachs are nervous. Some selling ahead of the announcement. The market starts tanking lower on the simple announcement of tapering. We hear it's only ten billion. Nothing dramatic. Markets not that happy. But wait, now the markets exploding. Why? Simple! He told the world that rates will remain unbelievably low for years to come. Yes, years. Not months. Years! Low rates stimulates, stimulates, and stimulates some more, so even though liquidity will come out over time, there will be enough stimulus from lower rates to keep the economy humming along for quite a long time.

Housing will do well. Banks will lend. Folks will open businesses, etc. That was the magic for this market. Prolonged low rates. Nothing could be better for the banks, and just about everything else, which is why the market exploded today. The Dow was up a hair below three hundred points. Lots of new highs. The S&P 500 was three points from a new high. Solid, strong action with solid volume behind price. A bullish day in the face of sentiment. More on that in a bit. Bottom line was today was bullish within a big picture bull market.

Sentiment is still very bad news for this market. That should not be ignored, but as usual, you stay with the bigger picture trend in place, especially now that we know the Fed will be behind this market for years to come thanks to rates. The bull-bear spread amazingly did not pull back even though the market was down four out of five days last week. The spread remains 43.9% and that won't last. Someday it'll go into the 20's, but maybe the market needs to have a blow off top first, and who knows from what levels. The bears could not succeed in taking out those 50-day exponential-moving averages, and that is the bottom line.

Those who front ran by shorting are paying the price. Never do that. We've talked about it over and over. See it and respond. For now the bigger picture remains very bullish, but at any time a strong correction could begin due to sentiment. Staying long is the only way for now, however.



Jack Steiman is author of ( ). Former columnist for, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

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© 2013

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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