Taper Lite on Tap?
Posted on Friday, September 13th, 2013
The old adage of “Sell on Rosh Hashanah, Buy on Yom Kippur” is a little out of sorts this year as the market has risen a little over 1.5% since the dawn of the Jewish New Year. The market is relieved to see no tomahawk missiles flying off US warships in the Mediterranean. The stand-down has moved gold and bonds lower and US equities higher in relief trading. All eyes are now on the Federal Reserve as they meet next week. The market has been left to traders as investors continue to sit on their wallets and await the latest from the oracle in DC. Which way monetary policy? Will the FOMC taper down their buying of bonds? As the deficit shrinks they may be forced to do just that.
The unwind of the “war trade” has kept the 10 yr bumping its head on the 3% level. The key to future action may be the reaction of the US 10 year to new Fed policy. How will stocks react if we break through 3% on taper action? Next week’s FOMC statement is going to go a long way in determining the future direction in all markets – gold, bonds, stocks and otherwise. Keep an eye on the 10 year.
One item that caught our eye this week was data on mortgage originations. Originations are down 30% at JPMorgan and Wells Fargo according to the WSJ. The real estate market is THE driver of the US economy. The Fed may not want to taper mortgage backed securities given the latest data. A Taper Lite may be on tap.
Widely followed bond fund manager Jeffrey Gundlach held another webcast this week. They are always interesting if you get a chance to catch one. In it Gundlach noted that Ray Dalio, founder of $145 billion hedge-fund firm Bridgewater Associates, believes that the next major financial crisis may come from an emerging-market country, said India is the most likely candidate to trigger such a crisis. The country is most vulnerable because it relies too much on outside capital to finance its budget deficit. China and Russia, by contrast, are relatively insulated, Gundlach said. -Bloomberg
Emerging markets have been stronger on a lesser taper expectation. Taper conclusions from the Fed next week may roil emerging markets the most. Keep an eye on Malaysia and India as their current account deficits are showing weakness. We still expect this 1680-1685 area on the S&P 500 to give resistance to bulls here in the US until Fed moves. Today is an expiration day so expect big volume on the open and close with little to move markets in between. It’s all about the Fed now. The FOMC meeting runs from September 17-18 with a press conference to follow.
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.