-Fed decision and openness to more free money keeps stocks afloat
Helicopter Ben and the Federal Reserve came through with the bare minimum necessary for investors, continuing “Operation Twist”. The best news from the announcement was their acknowledgement that the economy still sucks and that they stand ready to do more. Specifically, they cited slowing growth in employment and a slower pace of household spending, which is code for saying not enough people are spending money in the economy.
Slower spending is certainly not a surprise, as I have written extensively in these newsletters and is essentially what Facing Goliath: How to Triumph in the Dangerous Market Ahead is all about. The best statement that I saw was that they acknowledged that inflation is declining, recently coming in at an “official” rate of 1.7%. Of course if you eat and drive, that’s a joke. However, this is important because Bernanke has consistently said that they may do a full QE3 and expand the Fed’s balance sheet (print more free money) if inflation dropped below 2%. One likely scenario is that they are keeping their powder dry in the event that (when not if) Europe blows up again.
None of us can just “sit in cash” at 2/10’s of 1% for long, so the key is to be “Tactical” and avoid buy-and-hold (buy-and-hope) at all costs. Be the expert or hire one. And be sure to have your personal exit strategy ready. If your advisor is not preparing you for this and or telling you not to worry because: “you’re in for the long haul, it’s only a paper loss,” or the worst one, “we’re buy-and-hold and the market always comes back”… run! Better yet, give me a call, while you still have some money left.
Of course you can’t sit in the bank earning nothing either. There are plenty of ways to make money in this market and in the dangerous market ahead, but the key is to do it without all the risk. Managing money, especially your own, is a daunting task… and that’s where we can help. Our “Invest for need, not for greed™” approach combined with our hands-on proprietary Top-Down Tactical™ investment management strategy can help you manage risk and deliver returns. If you would like to learn more and/or get a free second opinion on your portfolio, simply reply to this email, click our Appointment Request Form or call for a no-cost no-obligation consultation today at (916) 925-8900.
What happens to stocks if Romney wins…Be careful what you wish for
Should the former governor of my original home town, the great state of Massachusetts and home to the Red Sox, Celtics, Patriots and Bruins, win the presidency, he said that he would fire Federal Reserve Governor, Ben Bernanke, on his first day in office, and appoint and anti QE, pro-austerity replacement when Ben’s second four year term is up on January 31, 2014. This would most likely be Stanford University’s John Taylor of Taylor Rule and president of the Dallas Fed.
One might think the stock market might like this. However, given that much of the rise in stocks over the last several years has been stimulus driven and continues to be buoyed the “Bernanke Put”, meaning the Fed, would stimulate further on any serious sell-off in stocks. The loss of Bernanke means no Bernanke put. Although I believe this would be the best scenario for the economy in the long run, the short term would be ugly. Yes my friends… be careful what you wish for.