Twice, the stock market has suffered from a “taper tantrum,” losing billions of dollars of investor money, because it was afraid the Fed would begin tapering or reducing the amount of its monthly purchases of Treasury bonds and Mortgage-Backed Securities (MBS), which is known as quantitative easing.  I have argued that it was an unreasonable reaction, because the Fed will not begin that s-l-o-w process — until the economy is stronger.  And, since when does the market collapse because the economy gets stronger?

Yesterday, the Fed reduced uncertainty by announcing it would only buy $75 billion monthly instead of $85 billion.  Immediately, I could almost hear a distant submarine sounding “DIVE, DIVE” as the Dow dropped 61 points in a heartbeat.  Then, the Prodigal Son returned home to the House of Reason, as the Dow ended the day UP a whopping 292 points, closing at a new record high!

Another reason I suspected tapering would begin yesterday was that it would be Bernanke’s last chance to begin unwinding the huge “stimulus” program he began.  Like everyone in office, he has his detractors, primarily that he didn’t foresee the financial collapse and then did TOO MUCH to save the nation’s financial system.  He wanted to start reducing what he began, just to answer his detractors.  From their standpoint, Bernanke was also a Prodigal Son, who did “wild & crazy” things before reversing course at the end.

History will be kind to Dr. Ben Bernanke!