Wednesday, June 5, 2013

"Fed Tapering" has become a "Usual Suspect".....Should it be?

With the market down close to 200 points at this time today, largely on the disappointing ADP employment data and on what is becoming the ‘usual suspect’ of ‘Fed tapering fears’, some market musings spring to mind.  For starters, have a look at the long-term S&P chart below and the affixed commentary.

Today’s price action might give one reason to answer the question on the chart with a leaning towards the former over the latter….especially with all the media hype over “Fed tapering”.  The reaction to the Fed’s seemingly intentional peppering of the market to the allegedly-soon–to-end QE-program has been stunning….with bond yields climbing rapidly, and with the relative divergence of Equities vs Bonds reversing quite sharply. (see next chart)

But let’s step back from the focus on the “trees” (ie: 10yr yields and the S&P Index) and consider the “forest” for just a second….

Clearly, a slowdown or a complete cessation of Fed-buying-of-bonds would cause yields to rise, but should equities really get clobbered along the way?  Wouldn’t the so-called tapering only take place once the Fed is convinced that the economy is humming along on its own without further need of Fed stimulus, or at least without a full ‘pedal-to-the-metal’ assist from the Fed?  The visual that I have is Ben Bernanke and his team of Fed governors pushing a stalled car from behind, all pressing hard against the trunk, using their legs and leaning into a good forceful forward push…..then, once the car starts rolling, first slowly, then faster, the engine catches and turns over, the car takes off leaving ‘ol Ben and his team standing upright, smiling and high-fiving that they got the machine started and running on its own!  Isn’t that exactly the time that you’d want to be in the car?!!??!!

As I’ve been writing in these missives for some time, I’m quite defensive on equities…..repeat….defensive…..not cataclysmically bearish!   I’m comfortable w/our higher-than-usual cash position that will allow us to scoop up some value if this selloff continues.  In the meantime, I cleared out of most of our fixed income in the past couple of weeks, I cut some exposure in the ‘bond substitute’ high dividend sectors that have outperformed in the first quarter of this year and are currently under profit-taking pressure, and I remain 70-75% in equity exposure with heavier weightings towards tech, selective REITs and Consumer Discretionary names.

I expect to share more specific ‘peeks under the hood’ in coming days…..stay tuned….

(Please note: This article is solely meant to be thought provoking and is not in any way meant to be personal investment advice. Each investor is obligated to opine and decide for themselves as to the appropriateness of anything said in this article to their unique financial profile, risk tolerances and portfolio goals).
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Additional Disclaimer: currently long many stocks/ETFs. Positions may change at any time without notice.

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