Investors have been watching Fed chairman Ben Bernanke like a hawk, trying to anticipate when the Federal Reserve will begin winding down its quantitative easing program. Forbes’ Nathan Vardi reports that his comments on Wednesday seem to have convinced investors into thinking that the program will begin winding down soon.
Ben Bernanke’s Comments
According to Vardi, Ben Bernanke’s comments seem to have led investors into thinking that the central bank’s bond buying program will be reduced this year and completely finished within the next 12 months. Of course Bernanke did say that nothing was concrete or “predetermined” yet, but he emphasized yet again that any decisions they made would be determined according to the latest data on the economy.
With the S&P 500 falling a double-digit percentage in the first half, most equity hedge fund managers struggled to keep their heads above water. The performance of the equity hedge fund sector stands in stark contrast to macro hedge funds, which are enjoying one of the best runs of good performance since the financial crisis. Read More
He used the analogy of slowing down a car by simply letting up on the gas pedal rather than by applying the brake. He also provided some comments that were a little more concrete, attempting to placate the market by saying that they would keep buying $85 billion in assets every month and keep short-term interest rates close to zero until one of two things happens: either the unemployment rate dips below 6.5 percent or inflation jumps up over the 2 percent long term goal of the Fed.
The Effect Of Ben Bernanke’s Words
Nonetheless, investors are planning ahead for the inevitable. Some have undoubtedly been spooked by the thought that the Fed’s bond buying program is ending, while others are sure to simply want to cash out and take what they’ve earned.
After Wednesday’s Fed meeting, stocks fell 1.4 percent. On Thursday they continued falling. The S&P 500 opened 1 percent lower. Emerging markets also plunged. The iShares MSCI Emerging markets Indx (ETF) (NYSEARCH:EEM) fell as much as 3 percent. Brazilian stocks opened 6 percent lower.
Gold, which is traditionally thought as a safe bet, crumbled to a 2-and-a-half year low on Thursday. Analysts slashed their one-month price targets for the previous metal, and gold mining stocks opened much lower Thursday morning.
U.S. government bonds, another traditionally safe investment, were also affected. The yield on 10-year bonds rose to 2.44 percent.