Just a few weeks back, IceCap Asset Management reiterated their view that all financial markets are significantly affected by the money printing ways of our central banks. On June 19, 2013 Ben Bernanke announced that later this year the Federal Reserve would very likely begin to print less money than what they are printing today, in effect resulting in many investors refusing to catch the bouncing ball. Early estimates have the money printing being reduced from $85 billion/month to $65 billion/month.
This pronouncement was enough to send all financial markets into a tizzy with everything declining, except for the US Dollar. Investors must understand that this is a game changer. Whether the Federal Reserve actually carries through with this plan is open to debate. One consideration has to be the fact that this “tapering” of the money printing scheme is dependent upon employment, growth and inflation all moving inline with the Fed’s projections. Now, considering the Federal Reserve completely missed the Tech Bubble, then missed again on the Housing Bubble, and as shown in Chart 1 are usually too optimistic with their economic projections, there is a very big chance the mighty US recovery may not exactly pan out the way they are projecting.
Perhaps the most important observation from the “tapering” announcement was the reaction by all financial markets to what was in reality a very small move by the Federal Reserve…
Full IceCap Asset Management letter below: