In a word, nothing. Yesterday we discussed what would happen today, and it happened. Sure, things get messy as the announcement is made. People anticipate something and expect something so invest with the idea that something will happen. And, of course, as soon as the words leave his lips, something happens.
Check out this chart on the S&P 500. It’s really amazing. Ben started his speech at 10:00. He hadn’t even had time to say anything and the markets gyrated. The vertical band represents his speech.
So, what does this tell us? Not much, other than the fact that people expected something to happen, and so reacted as though it actually did at first. The result was a massive whipsaw that destroyed many efforts to capitalize on today’s announcement.
This is kind of amazing. The announcement came at 10:00 am EST, with the S&P at 1407.95. Within five minutes it was down to 1403.65. After ten minutes it had dropped to 1399.25 minutes before reaching a low of 1398.65. Just 15 minutes after 10:00 it was back up to 1407.25. Within a half-hour of Ben’s speech, we were back at the same level we were at 9:59. As I write this the S&P is red for the day, but still a few points higher than yesterday’s close.
So, what have we learned? One very valuable point is to not get too caught up in the spins we get from the media. It’s their job to give us explanations for everything. But how will they spin this? In the end, it doesn’t matter. Nothing happened.
When the situation gets worse, we’ll see another round of aggressive quantitative easing. It’s possible that it’ll only work one more time anyway, with so many expecting it now. The law of diminishing returns will quickly negate any lasting effects.
It’ll be interesting to see what other tricks the FED can come up with. For now, a strong position in hard assets continues to be an investment against the dollar. Both remain strong for the moment. But eventually one will win out. History has already shown us the inevitable.
For your prosperity,
J. Keith Johnson
The Gold Informant