Thoughts From Joe - June 21, 2013June 21, 2013 Posted by: Joe Morgan, CFA
Top EightThe Federal Reserve's FOMC met this week and made no changes to current monetary policy. The accompanying statement's tone shifted slightly toward a pro-growth stance which may include future pullback from stimulus programs and in fact, Bernanke mentioned this possibility in the accompanying press conference. The press is all up in arms around potential "tapering" of QE, but remember just 7 months ago we didn't have this version of QE at all. So, going from $85 billion to $50 billion doesn't seem to me like a big deal. Unfortunately, the Fed is trying to day trade the economy and if this continues they will eventually lose all credibility. The bond market had its worst week in over a year. The ten year Treasury yield rose 40 basis points to 2.53 percent as markets are digesting the possibility of a Fed stance reversal. No markets were safe as stocks, gold, junk bonds, and emerging market investments all fell significantly. So, if the mere threat of a slight pullback by the Fed causes such reaction, we must accept that
markets are on an artificial high of QE. The question is how much of today's levels have been driven by that high and how
quickly will the high fade? As a reality check, the S&P 500 remains up 3.0 percent over the last 3 months even after this
week's 2.1 percent drop.Bernanke is on his way out as Fed Chairman. In an interview this week, President Obama made it clear he is looking for a new Fed leader. See my thoughts here.Fitch says the China credit bubble unprecedented in modern world history. The agency believes debt is now at a level where growth cannot be strong enough to overcome recent excesses. We've heard this story for several years now: ghost cities, hidden bad loans, capital restrictions, etc. But considering the next story, markets may now finally be reacting.Chinese banks are having difficulty borrowing from each other indicating more financial stress to come.
On Wednesday, the banking industry actually extended trading hours to ensure banks would be able to fund their balance sheets
for the day. Overnight rates spiked to an all-time high of 12 percent. The shadow banking...Read More