Game Set Match?
Posted on Saturday, February 1st, 2014
As you know we always watch and listen to what Richard Fisher of the Dallas Federal Reserve has to say as he speaks broadly and clearly on Fed policy. He had this to say yesterday.
Richard Fisher, president of the Federal Reserve Bank of Dallas, said Friday that he’d like to see the central bank’s bond buying fall to zero “as soon as practicable,” which could be by the end of the year if economic conditions allow.
As a new voting member of the Fed’s policy-setting committee, he voted earlier this week to reduce the monthly bond buying by $10 billion to $65 billion. The hawkish and outspoken Fisher has argued since last spring to start reducing the stimulus, saying it had lost its effectiveness.
If you believe what Fisher has to say then the Tapering of QE is here to stay and so may the downdraft in equity prices The Fed reduced their purchases by an additional $10B a month this week bringing the number down to $65B. Their reduced purchase have caused waves in Emerging Markets around the world but a slow and steady pace may be just the ticket. Markets have seen selling but it has not been the out of control variety.
By way of Arthur Cashin comes some insight on the selloff from Tom DeMark. DeMark is a noted technical analyst or as some would say a “witch doctor” who studies market charts for a living. Well, DeMark has made quite a living out of it. He is paid to wield his craft by some of the largest and most successful hedge funds and investors around. Here is what he had to say this week on the most recent sell off.
“Yesterdays up close …a close below 1767.20 on the S&P cash and 1762.00 on the future and it’s GAME SET MATCH…DeMark “…1929 style crash” ? I have no idea but for now ref close confirmation targets S&P 500 cash 1762 and 1725.02…sell”
Game. Sat. Match. Scary stuff from a Wall Street legend. We don’t think so but will keep DeMarks’ thoughts in mind as we go about our business next week. We recently bought some longer term US Treasuries and that has helped returns the past two weeks and would be just the ticket if it is indeed game, set, match. The most recent close on the S&P 500 was 1782.
This week saw continued pressure in emerging markets due to further tapering of QE. Turkey’s central bank attempted to assuage fears by raising interest rates 475. As Warren Buffett says when the tide goes out you find out who has been swimming naked. It appears that Turkey may have been. The market suffered again this Friday because of potential currency devaluations over the weekend in emerging countries. Governments make such moves typically over a weekend as banks are closed. We think that next week could find some support for markets as they are now in an oversold position. New pension fund money coming into the market at the beginning of the month may help the S&P 500 find support at 1770. Turnaround Tuesday may be back next week as we look for an oversold bounce.
A selloff of some magnitude would make the market cheaper on valuations than it has been in years with US corporate balance sheets been made much healthier since the financial crisis. The question remains, will the FOMC have the courage to continue to taper in the face of investor consternation and Emerging Market volatility? The market has not seen a selloff of 20%+ in over 2 years. A selloff would be cleansing and bring a healthy dose of fear (and bargains) back into markets.
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.