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Don’t Fear the Taper
Don’t Fear the Taper
In this week’s newsletter, we present reasons for being long stocks and discuss the “Taper.” Click on link: Don’t Fear the Taper, 6-14-13 for the full newsletter.
Quantitative easing (QE) programs, courtesy of the Federal Reserve, have pushed cash into Primary Dealer accounts at the fastest rate in history. This has been massively bullish for equities over the past four years, as the Primary Dealers used some of that cash to bid up equity prices. This will likely continue until the Fed significantly curtails or discontinues its QE operations.
US stock indices have been marking time during the past four weeks gauging “talk” about whether Chairman Ben Bernanke will slow down his printing presses. Notwithstanding the rumors, we doubt that QE tapering is on the horizon.
In our view, unless the Fed stops funneling money to the Primary Dealers, which we deem doubtful, pullbacks in stock prices are likely temporary pauses along an upward path. Therefore, in both of our Virtual Portfolios (Value and Put Selling), we are remaining long and unhedged.
The Fed is Unlikely to Taper
America’s national debt now runs approximately $16.5 trillion. President Obama use his power to hold rates down because the cost of higher debt service would devastate his political agenda.
Bernanke does Washington’s bidding so he is probably just ‘talking down’ market enthusiasm by leaking news of a coming ‘taper.’ In this fashion, he uses fear of reduced QE to contain equity prices without actually changing the Fed’s policy.
During the fiscal cliff debate in December 2012, people assumed tax rates would be much higher in following years. That precipitated an enormous amount of accelerated income and dividend payments that would have been made in 2013. Because of the higher income booked in Q4 2012, estimated tax payments due January 15, 2013, soared. This reduced the size of the expected Q1 deficit.
Bernanke’s primary mission is to monetize the debt created by federal budgets that far exceed revenues. We see no way for the Fed to reverse course on QE regardless of the whispers to the contrary.
The Fed has painted itself into a corner and there is no way to unwind the QE trade without debt service costs eating everyone alive. Unwinding would cause interest rates on U.S. sovereign debt to soar, because no one would buy debt at interest rates the government could manage. For every one percent rise in interest rates, there would be an estimated $80Bn in increased annual debt service costs at the federal level. The payment of interest would overwhelm all other spending.
In Love with TINA explains why stocks are attractive. There are no viable competing investments if you seek to protect your life saving’s long-term buying power. Absent a major change in policy, a full allocation to equities seems reasonable, as does avoiding fixed income. Bonds today are in a bubble, and a pop of the fixed income bubble is apt to be louder and more astonishing than anything we will see in the equity markets.
Read the full newsletter here.
Featured articles include: My Deere, Market Shadows added agricultural machinery manufacturer Deere (DE) to our Virtual Value Portfolio. And When Tear-Gas Flies, It’s Time to Buy (buying EMF).
Chart by Lee Adler of the Wall Street Examiner.
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China and Russia see what is happening, and they are preparing for the day when the Bernanke Bubble pops and the Paper that a US Dollar is printed on becomes more valuable than the backing of the Federal Reserve. The dumping of the gold standard in the 1970s led to stagflation - as the actual global buying power of the dollar collapsed. When the world realizes that the US cannot repay its debts, we will see a similar collapse in global buying power and get to the point of an inflationary depression. I do not doubt we are in one now, with a collapse in employment and workforce participation while at the same time enjoying a real inflation rate closer to 10%. Equities will not be the answer for this, rather it will be better to fill your garage with things you will need and will use - such as toilet paper - while your dollar is still worth more than Charmin.
Uncertainty is all that is keeping the economy afloat.
Thus the government will not do anything that brings certainty to investment decisions.
Nature Abhors a vaccum Dipshits!!! If one Paper Joooo Confetti Market collapses they all do!!!! This is a historical fact! When People get scared they get liquid, plain and simple!!! This causes a re-pricing of ALL asset classes. When the deflation of assets is allowed to occur by the Jew money Gods, those who were holding cash get to increase their wealth prospects if they have balls and cash and buy undervalued assets. This is how the Banks and their fucking wealthy industrialist parasitic friends have managed to keep their wealth. Well in addition to co-opting the government to absorb their debts and losses and making the taxpayer pay for them. Remember the name of the game has always been BAILOUT. Now it looks as though it may be BAIL-IN as well. Shit never fucking changes. Fuck you Bernanke!!!!!!
"In Love with TINA explains why stocks are attractive. There are no viable competing investments if you seek to protect your life saving’s long-term buying power. Absent a major change in policy, a full allocation to equities seems reasonable, as does avoiding fixed income."
This is a crock of shite.
FUBAR.
I thought this dumb bitch was gone fron ZH- unfortunately not- it appears.
"$80Bn in increased annual debt"
and yet this is just an increase to the Fed of printing 6.7 billion more per month, which I imagine they could handle easily. Yes, we're talking about a taper which is the inverse but it means a rate-rise could then be tolerated by the printer if it was permitted. Nothing saying it will be but that could kick the can again.
Virtual account..??
Serious...?? Yeah, lets get behind the journalist who doesn't trade.
There's another name for that..
They're called 'Economists"
Put selling portfolio is here: http://marketshadows.com/virtual-portfolios/put-selling-virtual-portfoli...
While the portfolio is a virtual portfolio, Paul Price (who selects the stocks) has his personal money in most, if not all, of these stocks. Paul's other virtual portfolio, selling puts, reflects many of his own positions as well.
http://marketshadows.com/virtual-portfolios/virtual-portfolio/
Some great points. However, by my calculation, every 1% rise in blended interest rate would lead to an additional $165 billion per year ($16.5 trillion * 1%).
There will be a mass exodus from savings and money market accounts into physical gold and silver. When is the $6.5 trillion question (funds held in commercial savings accounts, not counting $1.5 trillion in mutual fund money market accounts).
Phil sold out to the dark side over a year ago and now lives to carry water for Obama. He's options and futures only so he can quite easily ride with the momo parade and lose minimal money. Those foolish enough to buy stock shares right now risk having their faces torn off while Phil loses one or two percent on a bad trade. The equities market is where it is because of leveraged positions meaning all that cash will disappear when the buyers deleverage. Ben didn't print enough to get the S&P above 1600, he conned people through TINA into mal-investments that will evaporate with the first surface-to-ship missile. If you want to risk your hard earned cash betting events don't deteriorate and the market rises again now don't do it with direct purchases. A percent or two of your money in options will give you the same return but will keep 98% safe if things turn south.
What can happen? Surely Russia and Iran will back off in Syria if the west tries to save the rebels
Surely Japan will bottom out and the carry trade will start pumping back into the market.
Surely the Republicans will mend their evil ways, ignore the leverage they now have from a new scandal coming out every day and they will extend the debt ceiling. Ben will keep printing and all will be well.
Not.
Ben will keep printing but we could very easily be entering a new phase of this Ponzi market and blindly assuming the Fed will pull the chestnuts out of the fire yet again is INSANE
The "no other alternative" argument is the last asshole Schmuck wanting your money.
Market Shadows is NOT Phil's Stock World.
They are completely different in trading styles and results. The Market Shadows portfolios are kicking ass, far outperforming the S&P 500.
If the MSM, financial publications and all the brokerage houses are saying stocks. That little contrarian voice of mine in the background is saying head for the hills, its a setup for a stock slaughter.
Complete idiocy!
All stocks...that is not wise. Flat results for 20 years here and you think that will change? Japan has been going down for 30+ years. Deflation is more likely than inflation. : )
Completely agree. The taper talk is pure jawboning.
I want to thank whoever it was on zerohedge posted a link to this graph, which made me realize there is an alternative to stocks.
Every investment there is has high risk today. Reasonable prediction is out the window. What may be "viable" today might not be so tomorrow. Going all in stocks is a gamble. You're just gambling and basing things on hopium. Best of luck.
C'mon Ben, QE5 should be a tax-free check for $3,000,000 to me and every other citizen under your hegemony.
Think of the stimulus to the economy, and a much more moral and ethical choice than buying MBS's.
buy stocks? buy that chart? you're kidding