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David Moenning is a the Chief Investment Officer at Heritage Capital, which focuses on active risk management of the U.S. stock market. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Dave began his investment career in 1980... More
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Daily State of the Markets
  • Will We Be 'Talking Taper' Soon? 1 comment
    Jun 17, 2013 9:09 AM

    Daily State of the Markets
    Monday, June 17, 2013

    Good Morning. The question of the day is whether or not the Federal Reserve Board will begin "talking taper" at this week's FOMC meeting. Although we will find out soon enough (it is a safe bet that Ben Bernanke will address the subject at his press conference which will be held at the end the Fed's two-day meeting on Wednesday), this won't keep traders around the globe from speculating on the issue of when and by how much the Fed will start cutting back on their stimulus programs. And this, in turn, is likely to keep markets volatile until we get the word from the Fed Chairman this week.

    While there has been a fair amount of public discussion by Fed governors recently on the topic, so far at least we haven't heard anything official out of the FOMC. The bottom line is this has kept the market on pins and needles - and will likely continue to do so over the coming days.

    However, if one steps back from the blinking screens for a moment, the idea that stocks have been moving up and down violently every time the subject is broached is sort of silly. Remember, there is absolutely zero discussion currently of the Fed raising rates. Bernanke's bunch has made it very clear that rates will continue to stay low for an "extended period." Heck, we're not even talking about the FOMC actually stopping the QE programs any time soon. No at this stage, traders are fretting over the idea of the Fed simply reducing the amount of stimulus it is providing to the economy each month.

    Stocks rallied furiously on Thursday in response to a blog by the WSJ's well known Fed watcher, Jon Hilsenrath. Mr. Hilsenrath opined that the Fed Chairman is none to happy about the way the markets have reacted to the idea of QE tapering. (Recall that bond yields have spiked higher over the past month and that any further increase in rates could put a crimp in the economic recovery.) And since Hilsenrath is purported to be a public mouthpiece for Bernanke, traders now expect to hear dovish comments out of the FOMC this week.

    We should remember that Ben Bernanke is one of the world's renowned experts on the Great Depression. And given that one of the big mistakes made back then was that government officials prematurely assumed everything was fine, Bernanke has made it clear over the past four years that he plans to err on the side of caution. In other words, the Fed isn't likely to pull the punch bowl too soon unless the economy is showing signs that it has finally has established "escape velocity" and can grow steadily and strongly without assistance from the Fed. In short, as long as inflation is low and unemployment is high, Bernanke is likely to continue to prime the pump with economic stimulus.

    On the subject of the economic recovery, it should be obvious to anyone paying close attention that the economy is not exactly hitting on all cylinders at the present time. Sure, housing has perked up. And yes, we are starting to see some signs of improvement in the jobs market. But, the pace of economic recovery is anything but robust at the present time as we continue to see data come in on the disappointing side from time to time.

    While I can easily be accused of oversimplifying the matter this morning, I'm going to suggest that the bond market may be getting ahead of itself at this stage and that the Fed isn't likely to say much of anything about raising rates or even when the FOMC might start to cut back (i.e. taper) on its stimulus efforts. So, while everyone else may be "talking taper" right now, the data hasn't convinced me that the Fed will be.

    Publishing Note: I have an early meeting on Tuesday and will not publish morning report. Regular "State" reports will return on Wednesday.

    Looking for a disciplined approach to managing stock market risk on a daily basis? Check Out My "Daily Decision" System. Forget the fast money and the latest, greatest option trade. What investors need is a strategy to keep them "in" the stock market during bull markets and on the sidelines (or short) during bear markets.

    Turning to This Morning...

    In light of the fact that there were no negative developments over the weekend, traders have returned to their desks with a more positive view this morning. And with Japanese stocks rising for a second consecutive day and European bourses higher, U.S. futures are following suit in the early going.

    Pre-Game Indicators

    Here are the Pre-Market indicators we review each morning before the opening bell...

    Major Foreign Markets:
    - Shanghai: -0.28%
    - Hong Kong: +1.22%
    - Japan: +2.73%
    - Germany: +1.32%
    - France: +1.70%
    - Italy: +0.64%
    - Spain: +1.19%
    - London: +0.80%

    Crude Oil Futures: +$0.76 to $98.61

    Gold: -$2.80 to $1384.80

    Dollar: higher against the yen, lower versus euro and pound

    10-Year Bond Yield: Currently trading at 2.117%

    Stock Futures Ahead of Open in U.S. (relative to fair value):
    - S&P 500: +11.778
    - Dow Jones Industrial Average: +106
    - NASDAQ Composite: +26.52

    Thought For The Day...

    Only those who dare to fail greatly can ever achieve greatly. - Robert F. Kennedy

    Positions in stocks mentioned: none

    Follow Me on Twitter: @StateDave


    The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment.

    Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

    The analysis provided is based on both technical and fundamental research and is provided "as is" without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

    The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.

    Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.

    Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.

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Comments (1)
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  • wmateri
    , contributor
    Comments (541) | Send Message
     
    I agree with your statement that "the idea that stocks have been moving up and down violently every time the subject is broached is sort of silly." But I would like remind you that stocks reacted in an equally large very silly way every time the possibility of QE was mentioned over the past few years by Bernanke or Draghi (prior to its actual implementation). I didn't listen to the silliness then, but I am now.
    17 Jun 2013, 09:17 AM Reply Like
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