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The key event on the calendar is the next Fed decision on Wednesday, June 19. If the Fed strikes a hawkish note, all bets are off. However, should they refrain from suggesting imminent tapering that may well give the market license for a scorching summer rally.
To the surprise of most market participants, the Fed did indeed strike a hawkish tone and suggest imminent tapering which could begin as soon as September. In response, the market experienced the worst selling of the year. At Monday morning’s lows around 1560, the S&P was 127 points (7.5%) off its May 22 intraday high.
In tennis, no man’s land is the uncomfortable area between the service line and the baseline where a player cannot easily hit a volley or ground stroke. Players in this situation are like a fish out of water or Rafael Nadal in the early rounds of Wimbledon. As a result of the Fed’s intention to taper and the resulting technical damage, the market now strikes me as being in no man’s land.
“When the facts change, I change my mind” said J.M. Keynes. The incredible rally over the last 7 months, spurred by massive injections of liquidity by the Fed, has been undermined. It is hard to envision the market making new highs if the Fed does in fact taper. On the other hand, they are just talking at this point. By the time September rolls around, things may look very different and the Fed may be singing a different tune.
For my part, I have liquidated most of our trading positions and raised cash. I am holding on to our core long term positions, both long and short, but I am waiting for more clarity before further defining our portfolios for the short and intermediate term.
There is a debate among economists about whether we are on the verge of one of the greatest economic booms in history or whether the current market rally is the bubble of all bubbles. The consensus view reflected in market prices is the former. The latter is the correct one in my opinion…
We never believed the investment of taxpayer funds was intended to be permanent. We view it as our duty to return the funds. – Goldman CFO David Viniar on a conference call this morning Paying back TARP (Troubled Asset Relief…
Stock investors seem to like Bush’s plan to freeze the teaser rates on adjustable rate mortgages for a few years to give homeowners a better chance to hang onto their houses (S&P Intraday Chart).
Steve Pearlstein is one of the best in the business. Today’s column is a gem: Yes, the financial crisis has passed and the economy is growing again, but there’s a good chance that growth will be temporary — the result…
“History teaches that the greatest buying opportunities often arrive at moments of extreme stress in the financial system. Positioning one’s mind, and one’s portfolio, to exploit such moments is vital for generating something other than mediocre performance for the long term. …
NOTE: Every week I write a Client Note for my clients. For a limited time, I am allowing non-clients to sign up and receive the Client Note. You can sign up at the top right hand corner of the website. …
