Bernanke Pulls the Punch Bowl….Natural Price Discovery Time

On Wednesday, June 19, 2013 Ben Bernanke announced to the world at the end of the regular two-day FOMC meeting, what we all knew would happen eventually, stimulus will slow.

Why were markets so shocked by Bernanke’s statements?

The party had to come to an end, there is no one who thought or believed the FOMC stimulus would continue indefinitely. It was truly not a matter of “if” but “when”. So markets and participants acted like they usually do, in an exaggerated manner, such the volatility.

Natural Price Discovery Begins

With companies growing profits at 3-5% and certain stock markets rising 15% this disconnect just cannot continue. Now may be the time that values come more in line with reality. We hope so, as the farther values get from reality, the worse the correction. For the record, we do not see a crash, but a move of 7-10% down from here would not surprise us.

We hate seeing lower asset prices, but are prepared

We do not like seeing assets go down in value, but extended froth is much worse. We have been expecting this for some time as you probably know (felt silly crowing as the markets moved higher) so we are well prepared.

Have a Great Friday…and oh, of course enjoy another summer weekend!

John Kvale