Today Ben Bernanke spoke before the house financial services committee, and boy did he upset the markets. While the S & P only closed down half a percent, it did so on the highest volume in over a month, and corresponded with gold losing over 5 %, and the dollar skyrocketing higher. (That strange day in the market on Monday, looks to have just been a one day ordeal.)
So what did he say that got the markets so riled up? Well it was more what he didn't say. Namely that he didn't make any, even subtle, mention of QE3. In reality his silence on the matter should not have been so much of a shock, with oil around $110, the economy having just been told it grew at a 3 % clip in Q4, and Republican candidates calling for Bernanke's head (one of whom happened to be questioning him). And yet, it was a shock to the markets and they reacted strongly and negatively. I think this speaks volumes of what's been driving this market higher: loose monetary policies and the perception of their indefinite continuation.
What the markets woke up to today was the potential of a hiatus in money printing (at least in the short term), because as much as Bernanke would like to print, and the government needs him to print, he's in a bind, and cannot do so with asset prices this high.
Well see what happens over the coming weeks, but I wouldn't be at all surprised to see this realization sink in a bit further and lower asset prices along the way.
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