The Federal Reserve will hold its October meeting next week. I'm arguing that the meeting is going to hold little to no effect on the already bullish market that we're in.
Last month, like many other investors, I was unexpectedly whacked in the face with the Fed's frying pan when Ben Bernanke came out and decided that the Fed's bond buying must continue.
"Conditions in the job market today are still far from what all of us would like to see,"Bernanke said at a press conference following last month's meeting.
Economists after that focused on December as the most probable date for the Fed to begin reducing the purchases. Twenty-four of 41 economists in a Sept. 18-19 survey identified the central bank's December meeting as the time to taper.
We're just days away from the next meeting of the Fed; and the market will be looking for Bernanke to continue his sentiment that the market needs the Federal Reserve's help; especially after the small hiccup that was the government shutdown - even though the markets have basically recovered their losses from the shutdown.
The most disturbing, but hardly surprising news stemming from this meeting is the fact that the Fed is likely to delay the tapering of its bond purchases until after March of 2014 - due to the government shutdown. It's disturbing to me, as an advocate of Austrian economics. I've been anti-QE and in favor of trying to re-establish some type of control over currency, instead of simply printing more and more of it, and assuming nothing would go wrong for years now. It's a battle that I'm constantly losing.
As if putting it off wasn't bad enough, the taper is reported to not be too significant either. Bloomberg reported that the monthly bond buying will be tapered from $85 billion to $70 billion. Hardly a major pullback, nothing for fiscal conservatives to really even get excited about.
Its got one thing right - the fact that it's going to be focusing on bank liquidity regulations, making it so that banks have cash available to weather financial crises - and hopefully to help avoid another 2007-09.
The Fed and other U.S. bank regulators have already approved rules to implement the portion of the agreement that governs bank capital. They also proposed certain additional capital requirements that went beyond the international agreement.
The Fed said in a statement on its website that it planned to propose new liquidity rules at its October 24 board meeting.
During the financial crisis, some banks got into trouble because they did not have enough liquid assets on hand to endure temporary funding freezes.
Liquidity requirements would aim to prevent a repeat of this by forcing banks to hold minimum amounts of assets that could be sold relatively quickly in a crunch.
While I like the new liquidity requirements, it's offset by the nerves I get from continued quantitative easing. I'm still positioning bearish, with or without the Fed continuing to dump money by the truckload into the economy.
If you're looking to continue to position yourself conservative, as the fears of a QE inflated bubble continue, here's how I'd do it:
- Small 5%-10% long position in dividend paying staple stocks like (PG, MMM, KO, GE, WMT) and (AAPL)
- Medium-sized position in actual gold or silver bullion, and small long positions in gold and silver trusts (GLD, SLV)
- Medium-sized cash position in FDIC insured account (or several FDIC insured accounts). Small to medium "insurance" cash position available in person somewhere.
- Small positions in fundamental shorts that could benefit from a macro pullback like (P), (SHLD), (JCP).
- Conservative bond fund ETFs like (TLT) and (EDV)
- Medium-sized long positions in inflation-adjusted Treasuries (AAA rated)
Especially with Janet Yellen coming down the pipe, investors are predicting "QE-infinity" - something which simply scares the dickens out of me. Though my generation isn't likely to see the massive bubble burst, I continue to feel that with easing and Keynesian economics, we are leading ourselves down the wrong path. I reaffirm my conservative outlook on the macro markets until further notice, and best of luck to all investors.