Monday, December 23, 2013

Yes, Taper

Last Wednesday the US Fed came out with a masterful massage of expectations when they stated they would indeed start to taper their purchases of US Treasury bills and bonds BUT they expected to keep interest rates low for years to come. They changed the trigger events for raising rates again, from the unemployment rate, to the need for GDP to rise along with inflation. In all, it seemed a masterful manipulation of financial market expectations. There was an hour of very volatile price movement in interest rate sensitive securities as the market participants digested the news. And then the charts went back to looking more in tune with the trends they have established.

Of note, regarding the intent of the Fed to keep interest rates low for a LONG time, are the housing stocks. They had been in a pullback for the last few months and have seemed to be forming a bottom in that pullback. DHI looks to make a move from here.

In regard to that previous post about "NO Taper".   I spend my trading time looking at charts and price movement and trying to deduce what "the market" actually expects, by what has happened. Most changes occur over time. Rarely is there a single event or news item that changes the trends or the general outlook for any single security, or the markets or the economy in general. So I deduced "no taper" from the way the market was acting ahead of the Fed meeting. They did indeed announce a taper, but the way the market acted was the same as no taper. With the exception of gold and silver, although the charts and price action seems to suggest that those markets may be getting ready to change direction also. Low interest rates for an extended period, and a dedicated Fed with the intent to induce some inflation will eventually induce some inflation. The risk would be a Fed that loses the ability to take on more balance sheet debt, or a reduction in demand for risk in the economy in general. And those don't seem to be an immediate risk.

We'll see. Gotta go.

Control risk,

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