Everyone knows that the US Federal Reserve is going to print money (quantitative easing) in November. Hence, the financial markets have already priced that in. To them, this is a foregone conclusion. Surely, Bernanke is going to print trillions of dollars right? There?s no way he?s not going to do that right?
At this point, investors should be alert. When almost everyone thinks that a future outcome is a slam-dunk certainty, it?s the time when the market is most vulnerable to a significant setback. Since everyone is expecting that Bernanke is going to print so and so amount of money, and if it turns out that he is not printing as much as expected, the reaction by the financial markets can be savage. Any hints of dithering by Bernanke will be very negative for asset prices in the very short term.
Surely it wouldn?t happen right?
Well, who knows.
As the Americans accused the Chinese of manipulating their yuan, the Chinese will be accusing the Americans of manipulating their dollar through money-printing devaluation. Perhaps behind the scenes, both sides are negotiating a middle road. Maybe the Chinese will promise the Americans that they will appreciate their currency a little more than expected and the Americans will promise the Chinese that they will print a little less than expected. That way, the Chinese can cool their economy and pop their speculative property bubble while the Americans can benefit from a sell-off in gold and commodity prices and trigger a mad scramble for US Treasuries, which the US government will happily oblige because they are in need of cash to borrow.
Be ready for surprises!
