Fed keeps the party going

The Federal Reserve, spooked by the looming budget fight and modest job gains, holds off on tapering its money pumping stimulus.

By Anthony Mirhaydari Sep 18, 2013 4:57PM

Image: Wealthy couple celebrating in a car (© Image Source/Getty Images)No taper.

 

That decision has set off another rip-roaring, liquidity-fueled melt-up in the stock market -- as investors climb over themselves to buy up positions in Fed-sensitive, interest-rate dependent assets. Gold and silver. Treasury bonds. Mortgage REITs. Homebuilder stocks. Steelmakers. Emerging market stocks. Stuff like that.

 

Of course, things remain stacked against regular investors (there is evidence that someone got wind of the decision a few minutes early, given moves in precious metals and in the bond market). And, as I mentioned in a recent video segment and column, this isn't going to end well (the Fed seems set on waiting until inflation is out of control before pulling back). But for now, the market is off to the races.

 

The overall takeaway is that the economic data -- especially housing and jobs -- stalled enough that the Fed backed away from the taper of its $85 billion-a-month bond purchase program (which started last September) that seemed so likely back in May and June. Chairman Ben Bernanke, in the post-announcement press conference, also mentioned concerns over the upcoming budget/debt ceiling negotiations in Washington.

 

But, as I mentioned in the video segment, the Bernanke Fed has erred on the side of more stimulus, rather than less. And thus, it's not surprising that they did what they did today.

 

 

 

It's like this: Given the deep structural problems in the job market, with the labor force participation rate back to late-1970s levels, the Fed isn't going to pull back in any meaningful way until inflation forces their hand. (I wrote about this in another recent column.)

 

This is especially true with dovish Fed vice chair Janet Yellen now seen as the front runner to replace Bernanke when his term ends in January. The former head of the San Francisco Fed has been a relentless supporter of aggressive stimulus and seems to believe, at her core, that cheaper money can solve our problems.

 

 

For now, at least until the budget fight heats up in October, investors really have no choice but to chase the uptrend here. The focus should be on new areas of strength, such as the iShares Mortgage REIT (REM), which I've added to the Edge Letter Sample Portfolio.

 

 

Other new additions include Mechel Steel (MTL) as well as homebuilders KB Home (KBH) and DR Horton (DHI).

 

Disclosure: Anthony has recommended MTL, KBH, DHI, and REM to his clients.

 

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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42Comments
Sep 18, 2013 5:20PM
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Only $18 trillion in debt?  What the hell, we can afford $85 billion per month, every month, indefinitely (note the sarcasm).
Sep 18, 2013 5:29PM
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Yeah, the Fed gets to party...and the American people get to sleep in the wet spot.
Sep 18, 2013 5:19PM
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Broken Clock... yesterday it was going to be chaos, today it is party time.  What gives?
Sep 18, 2013 5:49PM
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Condemns us to war to stop it. A stupid war over stupid money for stupid rich and unethical people because they can't exist any other way. Psychopathy. 
Sep 18, 2013 6:18PM
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the day fed stops printing all the banks go bankrupt because of big amounts loaned to buy speculative stocks with no collateral to obama's middlemen and small investors .these stocks have asset book value  near 5% of stock price and no profits and no dividends just good intentions to make future profits.it will be worst than house bubble crash of 2008.at least then banks had houses as collateral that's why fed cannot stop printing.only inflation will make fed stop printing same as happened in many latin American countries during 1982 recession.Now obama cheating on inflation but he wont be able to do it forever.
Sep 18, 2013 6:14PM
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There's a very thin line between prosperity and depression. 
Sep 18, 2013 5:57PM
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I would like to ask the readers for their opinion, if you had 45,000.00 in a roth IRA, that was getting 5%,that is now maturating at the end of the month, would you let it roll over at 2.10% or buy into this market? I too can not believe that the fed would keep printing but there it is. Just asking.
Sep 19, 2013 12:38AM
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No matter what’s your party affiliation if you have been in the market for the past four years you have made a lot of money. Today the bears got ripped and are mad as hell.

Sep 18, 2013 7:24PM
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Medicaid and EBT for the wealthy or those with money to throw away. Its their version of  Wall Street welfare. Can't see where anyone playing the market can open their mouth about the poor getting assistance. Its like the pot calling the kettle black.

Market is nothing but a scam with the lower income footing the bill. What a joke.

Sep 18, 2013 6:32PM
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has anyone really answered one simple question? what is all this phony money printing actually doing? where is it coming from? 85BILLON a month???!!!! huh??? talk 'bout unsustainable!!!!

 buying up bonds to 'artificially' bump up the markets benefits whom exactly? outside of course the obama regime insider trader cronies...but John Q. Public is outta work, actually 90MILLION John and Jane Q. Public's are now outta work!!! so they're not investing in anything except trying to stay alive and above water financially, they ARE NOT MOVING THE ECONOMY AT ALL!!

  so if the markets are not moving 'naturally' as they should be if there actually was a TRUE ECONOMIC BOOM or remote RECOVERY....and of course you can' keep 'printing' your way outta debt, the debt is 18trillion and going up, so what exactly is the bottom line here?? and then what the phuck????
Sep 18, 2013 10:37PM
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COP at $70.56 a share!  TOG and Sangria called it!

 

Goin to Vegas Baby!

 

 

Sep 18, 2013 7:22PM
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Devalued dollar once again.  But that is ok for Ben, he has millions of them.  But for you and me, it just means things will cost more.  So, we buy fewer and fewer things.  
Sep 18, 2013 11:14PM
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Yes  we worked at it and a couple bucks are made....Not a bad oil co.

Now we can move on and make some more...

Vegas sounds great, but a long road trip so I will stay within 400 miles and play a 1000, 21 tables.

Sep 18, 2013 7:38PM
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If you found a tree in your backyard that grows Ben Franklins would you chop it down? Heck No, this is what your elected officials in D. C. found in their backyard through the Federal Reserve printing presses,  they will not chop this tree down until they are forced to do it
Sep 18, 2013 7:23PM
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The economic data STALLED enough to back away from tapering....So your saying QE x 3  HAS NOT BEEN EFFECTIVE FOR 5 YEARS SO JUST DO MORE....Brilliant!
Sep 19, 2013 12:05AM
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It was a good day....And a good day was had by all...
Sep 18, 2013 10:34PM
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Keep your eye on the USDA Animal Sperm Bank.

 

Just sayin.

 

 

Sep 18, 2013 7:03PM
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Why a melt up they didn't do anything? He, he!
Sep 18, 2013 5:52PM
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Obviously the computerized trading system doesn't just have automatic sell triggers, but also has automatic buy triggers. A small trend either way will set off a chain reaction of buying or selling leaving the small investor just watching from the side lines and not in the game. The federal budget battle is much more volatile than tapering bonds and might still pull the trigger.
Sep 18, 2013 7:18PM
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I always do the opposite of Anthony's advise.  A few weeks ago, he was announcing pull back big time.  I wish I could be as wrong as often as he is and be a financial analyst, especially with MSN..
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