Slip Into Something More Comfortable?
Posted on Wednesday, July 24th, 2013
Has Bernanke’s jawboning of the market recreated the bubbly asset prices that FOMC members were afraid of? Bernanke had managed to talk down asset prices with his taper talk but asset prices and bond yields moved too far and too fast for his liking. His latest testimony may have just pumped the bubble back up as equity markets hit new all time highs and high yield prices tip toe back from whence they came.
Was Bernanke’s taper talk really just a shot across the bow and a warning to institutions to brace for a harder landing and a taper come September? We had this to say last week.
Why did Bernanke allude to a tapering of QE that caused to the bond market gyrations in the first place? He answered that in the Q&A portion of his Congressional appearance yesterday. Bernanke said that not providing the market with guidance about its plans for monetary policy would have “risked increased buildup of leverage or excessively risky positions in the market, and that the unwinding of those positions is the reason for some of the market volatility”.
Bank of America is out with a report this morning that shows institutions selling at a near record pace while the retail investor is pouring money in at new highs.
Bond yields tell the story. As long as bond yields stay around 2.5% the Chairmen will be content. Volatility is low and that may help markets sustain their trajectory throughout July and August. This could be a good time to slip out of some higher risk investments and into something a little more comfortable. China seems to be slipping as well although it may not turn out to be very comfortable. Merkel is campaigning for her election in September. All will be quiet on the western front ‘til post election as Merkel will not want to step on any toes until then. The Fall is shaping up to be a doozy. September FOMC meeting and German election could produce what could be a secular change. It’s all about September.
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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.