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.

By Anthony Mirhaydari Sep 17, 2013 4:41PM

Dangerous Drive © Vladimir Maravic, Vetta, Getty ImagesIt'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.



Check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.c​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​om​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​ and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.


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50Comments
Sep 17, 2013 5:44PM
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Does anyone put any faith or trust in what this guy says?   I mean really.  Nice headline.  Buckle Up for the Wild Ride.   Talk about sensationalism.  If it wasn't so sad it would be laughable.  
Sep 17, 2013 5:31PM
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Reminds me of a bunch of junkies huddled in a alley waiting to see if someone scored the good stuff and that the flow will stay steady. Tighten up the supply and they start to get the sweats. Would think after Wallstreet goes through their own form of the  "sweats"  & assuming the FED keeps interest rates in the basement they will still have the only game in town. BTW thanks Big Ben, the little old senior lady my wife runs errands for is now offically broke. Just couldn't make it on 1% cd's and the last of her savings will be gone before years end.
Sep 17, 2013 6:04PM
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Everyone already knows that feeding Wall Street does little for main street.  They could print another trillion and things won't be much different for the middle class folks. Their assets are tied to their jobs which aren't paying for anything more than treading water, if even that.  The increased rise in the net worths and incomes of the wealthy is almost directly proportional to the amount of currency that is released by the fed.  So who is this really helping anymore?  Low interest rate mortgages?  Like the median income can even afford one?
Sep 17, 2013 6:53PM
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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.    

Sep 17, 2013 5:20PM
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If its such a 'rigged' market with malformed pathways to valid price discovery,
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.

Good day!

Sep 17, 2013 11:27PM
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Is it me, or have cans of soup really gotten smaller ?
Sep 17, 2013 8:57PM
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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. 

Sep 17, 2013 8:51PM
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CUT THE UMBILICAL  CORD AND GET IT OVER WITH.

THIS IS INSANITY

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This apparent bubble in liquidity is reminiscent of the dot com bubble and the housing bubble.  Its similar in that the trough in surrounded by investors happily enjoying the benefits of an artificial money supply fueling stocks just like when the banks were supplying money to the housing market causing prices to rise sharply.  We know what happened there.  Many are either unaware or reluctant to leave any money on the table so they stay fully invested.  I mean, why not, they are making money and they can't get a return anywhere else.  THAT IS THE PROBLEM and that is how the smart money will once again fleece the sheep as sophisticated exit strategies will quickly cut losses for the fast money and leave Mom and Pops holding the bag.  It should be criminal.....but its not.  Good luck.
Sep 18, 2013 6:53AM
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End all the QE program now.... kill the free money to wall street banks. Stop the printing presses . 1.5 percent int rates at the fed window . And bring mortgage rates to 5-7 percent  with a 750 credit score or better and 20 percent down on a house. Start rewarding savers not spenders..FIRE the whole house of rep in Washington in 2014.....
Sep 17, 2013 8:46PM
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Robin1620

 

Even better, END THE FED!!!!

Sep 17, 2013 6:02PM
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You act like it will be a gavel slamming down on the cold soul and weenus of every grubber addicted to Wall Street. Think more like a... STD- strategically tempered depletion of artificial reliance. ZERO business platforms are geared for it. They will begin a cycle where they fall short quarter after quarter and wonder why more people aren't willing to buy imports, smaller container sizes and give in to ridiculous marketing pushes. Apple is UP on cheap phones-- the public could care less. Watch the structure of these platforms as things buckle-- it's been coming in without cause (osmosis) and doled out as executive compensation for "talent". Pretty much-- TALENT is making profits without artificial stimuli causing it. All THAT talent has been job blockaded for 5 years now. Easy prediction-- execs too arrogant to recognize they are failures will resort to crime, get arrested and die in prison as crooks. It will come down to going forth and finding the best or liquidating in bankruptcy. A reminder AGAIN that derivatives prioritize over stock and collateral claims. You can try to sneak it out the backdoor but what you do with it after that is likely associated with who holds the derivative obligation you are fleecing. What goes around comes around and usually is far uglier on that return trip.  
Sep 17, 2013 6:33PM
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There are many good stocks that are performing very well in this market and any change in government pumping monies into the system should have no affect. If it does wow!! then for sure we will know the degree of Wall Street rigging of the market. 
Sep 18, 2013 6:56AM
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The invester knows the Fed wil taper slowly!! What else does anybody need to know more??

Sep 18, 2013 12:28AM
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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.

Sep 17, 2013 7:24PM
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This guy said the beginning of the year "the stock market and economy was built on a house of cards and was coming down soon", something to that effect. Anyway, I'd advise anyone to do the opposite Anthony says. On "opposite day", do what he says.
Sep 17, 2013 10:51PM
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BE NICE TO ME MR.FAT KITTY

I HAVE A SURPRISE FOR YOU

THERE ARE NOT ENOUGH PEOPLE AROUND,BUT I WILL SHARE AT A MORE APPROPRIATE TIME
Sep 17, 2013 9:18PM
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Anthony, if the ride is going to be wild ie down, then why do you hold anything? Isn't everything going to go down? Surely you are either IN or OUT? in 2009 EVERYTHING crashed so if you saw it coming you got out entirely, then try to get in quickly on the uptake. I dont see the point in your some in strategy. Please explain.
Sep 18, 2013 8:23AM
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Geraldo will enter Al Capone's secret closet at 2:30 eastern. 
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