Buckle up: Wednesday will be a wild ride
All eyes are on the Federal Reserve's taper decision. The market is already preparing for chaos.
It's almost here. Wednesday's Federal Reserve decision -- on whether or not to taper its ongoing $85 billion-a-month long-term bond purchase stimulus -- has investors and traders on edge. After all, the script over the past year, since the so-called "QE3" program was launched last September, has been to largely ignore any and all concerns because the liquidity would continue to flow.
That's why stocks grinded higher earlier this year despite ho-hum economic progress. And that's why the disparity between Wall Street's push to new highs and Main Street's lackluster job market has only widened.
As I mentioned in a recent video segment and column, the Fed really has no good options here. Expectations are all over the map (the default expectations is for a $10 billion taper). So it's no surprise that traders are preparing for a wild ride.
To recap, I don't believe there are any good options because the Fed has boxed itself in by getting the markets and the economy so addicted to its cheap money. Clearly, each successive round of bond buying has had less and less impact on the real economy. And, after taking the monetary base from around $800 billion before the financial crisis to $3.5 trillion now, the Fed has limited ability to pursue additional stimulus.
It's already locked up nearly one-third of the long-term Treasury bond market with its purchases. And let's not forget that the recession ended more than four years ago. Yet the Fed, right now, is stimulating the economy more aggressively than it was in the midst of the financial crisis five years go. So this strategy is running out of runway.
With so much on the line, investors are preparing for a volatile session on Wednesday. I'm seeing buyers come into the CBOE Volatility Index (VIX) -- known as the "fear gauge" -- as options traders protect themselves from a possible sell-off. High-frequency computer trading algorithms are running amok in the market for Treasury bond derivatives, options and futures, possibly testing systems and strategies ahead of the Fed announcement.
I've been recommending my clients book profits and raise cash early this week, to avoid the dramatics that are sure to come. While the recent strength of Fed-dependent stocks like homebuilders and mortgage REITs -- such as the Homebuilders SPDR (XHB) -- suggest the Fed could take it easy (possibly even postpone the taper to October or December), it's just impossible to know.
I'd rather wait to chase a continuation of the September uptrend than be caught in a violent sell-off as word comes down, like the voice of God, from the Marriner S. Eccles building in Washington -- where a handful of unelected bureaucrats will decide what's going to happen to the price of money, and thus the future of the economy and the financial markets.
Thus, I continue to sell positions out of my Edge Letter Sample Portfolio, shown above.
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If the plight of the average person is to improve, wall street needs to be re-regulated by the following:
1.Reinstate all regulations that were in place in 1992, and repeal any changes since then.
2.Break up (trust-bust) all giant corporations: Exxon, Chevron, GE, BofA, Chase, Citi, and the like.
3.Repeal all "free" trade deals done since 1992.
4.Declare oil a utility and treat it as such.
5.Bar the federal reserve from propping asset prices.
These would be a good start.
why the heck are you still in it, Mr M? Riddle me that!
Is it for the 'phony money' being printed? I know, I know...you have to make
a living. We get it. Just dont sell the entire market short, is all I ask. There
are many components of it actually making real profits and sharing them,
irrespective of quantitative easing.
I Want Something Understood:
People are overrating the Stock Market and I don't mean their overrating the value of any particular stock I mean the Market as a whole.
Yes there are more people involved in 401k's or bonds or group holdings but the market as a entity of itself is overrated.
Jobs are the important factor and the desire to have a job, not just a doctor or lawyers position in life but a JOB.
I remember when I was a child we were proud of our parents for having a job and we looked forward to coming of age and getting out there in the workforce. I also remember wearing closes to school with parches on them but I wasn't alone a lot of other kids wore close with patches so it wasn't something frond upon.
ONE just made due, we didn't wait for the Government to send us a check. We ate what we had, we lived where we could afford to live and we dressed the best we could and the closes we wore were clean.
My mother saved for years in order to buy a new house, and my father didn't even know she had the down payment for it.. How did she get it we wore patches on our close and ate leftovers and did without the things not needed. We had one T.V., one radio, and hand me down closes.
It's time for the American people to get back to the basics and quit counting on the Government to bail them out. Live within your means and love the life you live.
The invester knows the Fed wil taper slowly!! What else does anybody need to know more??
My guess is the picture is from a few years ago, and this is the picture of President Putin of Russia with his ex wife. They just found out they are the richest people in the world and President Obama was just re-elected President of the U.S.A. The 1 percent have it rough at times. Now all's they have to do is wait until the next U.S.A. congressional election to become really scared. Ha ha ha ha ha.
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The company is planning a 10-for-1 split, which will cut its share price dramatically.
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