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Strategies & Market Trends : Dino's Bar & Grill -- Ignore unavailable to you. Want to Upgrade?

To: Goose94 who wrote (2779)	9/27/2013 7:57:21 PM
From: Goose94	Read Replies (1) \| Respond to of 203376

Based on the non-taper event from last Wednesday, Jaime Carrasco Macquarie Private Wealth expect: U.S. yields should continue climbing. We now have two clear camps in the bond market: those that are still drinking the Kool-Aid, believing that the Fed can maintain control over interest rates and by extension the economy, and those that understand that after five years of stimulation, the Fed’s policies are not achieving their intended outcome. This realization was likely crystallized for many by the Fed’s inability to pull the trigger on tapering, as it was a strong signal that the economy is not nearly as healthy as advertised. Given that it now takes $7 of debt just to achieve $1 of GDP growth, the latter camp will have all the more reason to sell their Treasuries, pushing rates higher and putting even more pressure on a U.S. economy already heavily burdened by elevated debts. Quantitative Easing (QE) will increase, not decrease. What is clear from the Fed’s decision is that they cannot stop the printing presses because they are the primary buyer of Treasuries. Without QE, few if any are willing to buy Treasuries at these low rates. With the U.S. only becoming more indebted, existing Treasury holders have no incentive to continue holding. As they divest, these Treasuries, the more the Fed’s QE will be needed to support Treasuries in an attempt to keep a lid on rates. Although the Fed cannot control rates forever, they can use their ability to create unlimited amounts of dollars to at least manage the ascent. Ultimately though, history is repeating itself, and like the late 1970s, the Fed is clearly losing control of the bond market. This is very bullish for hard assets, especially the currently-hated relic that happens to be the timeless and best insurance against financial lunacy: GOLD. Yields have corrected from the high of 3.0 percent reached two weeks ago down to 2.72 percent as I write this. This decline in yields is coming from the buying of the Kool-Aid drinking camp, who still believe in the Fed. Sooner than later however, this buying will subside and yields will rise again as more bond managers re-assess the implications of this latest decision, which further eroded the market’s trust in the Fed’s actions. Increasing rates also pose a threat to the much-vaunted housing and stock markets. For housing, higher rates reduce affordability, a symptom which has already shown up in the new mortgage starts, which have plummeted, and also mortgage-related jobs, which many banks have been aggressively cutting. For the stock market, higher rates offer an alternative to blue chip dividend yields, especially for dollar-dependant retirees. In the mid to late 1970s, the U.S. stock market had a hard time competing with ever-increasing interest rates, and it was not until rates hit their peak in 1982 that stocks hit bottom. A similar scenario can be seen unfolding today, except this time stocks would have to fall from a higher diving board. Understanding all the economic forces unleashed by the fiscal mess of the Western world is challenging to say the least, but having a clear idea of the big picture enables us to position assets in a beneficial manner. I learned long ago that money is a blob on a platter that is always moving from one side to the other, and most investors fail to position themselves at the receiving end. Jaime Carrasco, Investment Advisor, Macquarie Private Wealth on BNN.ca Market Call Tonite Friday Sept 27 @ 1800ET