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Fri12152017

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Will the Fed Taper in December 2013?

Will the Fed taper in December 2013? I don’t think so.  Why?

John Authers of Financial Time, pointed the critical line in her testimony, released on Wednesday 2013-11-13, was that a “strong” recovery would “ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases”.  The key word is “ultimately” – which implied “a deliberate indicator that Ms Yellen sees no urgency about tapering off the bond purchases with which the Fed is trying to spark the economy back into life”.  Given that, “the chance that the Fed will choose to start the tapering process as early as next month’s meeting of its Monetary Policy Committee now appear to be close to zero”.

Another reason is that the debt ceiling will haunt the market again in Jan 15.  If the debt ceiling is not resolved, unlikely that there would be any tapering because the implications of shutting down the government could affect the market and thus slow down the market recovery process…

Hence, until the end of the year, the stock market would like to continue its rally – it is unwise to fight the Fed, though the rally might not be as smoothly as like beginning of the year.  However, I would be cautious on US equities as it has rallied a lot.  I believe China and Europe might be a better bet.  China is ‘relatively cheap’ and it would now be a “reformed play” as China hinted at bold new reforms on 2013-11-12 issued by the Third Plenary Session of the 18th Central Committee.  On Europe, it is relatively ‘attractive’ in comparing to US.  This is especially the case since the European companies would likely to benefit from the growth stories of the emerging markets.

Reference

Financial Times, John Authers, 2013-11-15, “Markets are Betting QE Cannot Last Much Longer”