Unlike what economic theory says about agents being rational, market agents’ perceptions and reactions are more based on primitive instincts than anything else. Only this observation can explain why financial markets have been reacting so badly to the eminent QE exit. Bernanke is starting to feel that the moment to unplug the money machine is close. But is this bad news?

I do not think so. I even dare to think that this might be a positive sign. If the Federal Reserve board believes that the economic data is encouraging enough so the Fed can start thinking about exiting the current monetary accommodation, then I think any rational person would think that probably the worst of the storm has already passed. Therefore this logically is great news; it means that enough time has passed in order to the economy to become more balanced.

However, market participants, always so proud of their ability to anticipate and incorporate information into market prices, are behaving like little children crying: “mommy don’t leave me” without incorporating the fact that mom never really leaves, which is the same as to say that the Bernanke put will always be there for them if expectations do not materialize in the following months.

My view is that some market agents are to dependent on market trends and when they cannot sustain their investment decisions on some visible trend, they tend to be out of comfort. They need to feel supported in something more than their own views about the future because they do not trust entirely on their thoughts. For real investors when the panic button kicks in… well those are the times to buy.