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Yesterday the Fed surprised the market by announcing that it would leave its policy of printing $85B per month and purchasing with this newly-minted cash a mix of MBS and UST in the open market.  What made this announcement surprising was that most economists had already forecast that the Fed would taper their printing and purchases by at least $10B/month in order to begin to reduce the world’s dependency on the Fed, and in reflection of the much-pronounced economic recovery.

Based upon the Fed’s decision, it would appear that perhaps the recovery may not be as robust as many would like to believe.  There is no other explanation for this decision.  In the meantime, the distortion in the markets for asset prices continues and the day of reckoning gets pushed out further.  More investors, who may have been holding out some dry powder to invest when markets correct and asset values reflect fundamental value, will now be induced to throw in the towel and capitulate to the Fed’s seeming desire to have everyone all in.  I heard that one very well-known hedge fund, run by some of the smarter folks out there, is now 50% cash.  There are lots of clues out there.  Seems to me that many are choosing to ignore them and play the momentum trade.  So far, this has paid off well.  Someday it won’t.  

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