Sunday, December 15, 2013

What's In Your Wallet?

While the current set of bureaucrats tinker with the economy, we must find ways to protect ourselves from them.

10 year T-Bills have risen to 2.88% yield due to hints that the Fed will taper off the monthly purchase of $85 Billion monthly, (QE or Quantitative Easing) thereby causing a perceived shortage of T-Bills. Ridiculous. Paper backed by paper is still paper.
That same 'tapering' hint, as they call it, has caused a drop in the Dow back to sub 16,000 levels, erasing the recent gain. Notice, there has not yet been any 'tapering' yet stocks have dropped. The stock market is a dangerously paranoid place.
One other effect of the dreaded tapering is that there has been a sell-off of gold (and silver) to levels set in winter of 2010. Investors, ever eager to stay ahead of the curve, are rushing back into the bond market (T-Bills) as interest rates ease up. Now is the time to find bargains in metals. I recommend:
#1: As with most things on Wall Street, the conversation must begin with the Federal Reserve, which is widely expected to begin the delicate process of unwinding its unprecedented quantitative easing experiment.

If the Fed decides to pull the plug on the $85 billion monthly bond-buying program too early, the economy could slip back into recession. If it waits too long, it could unleash a nasty bout of inflation. There’s also the risk the Fed could lose control of the bond markets, sending closely-watched Treasury yields spiking.
“The Fed is in the hot seat. The markets ultimately might find the emperor has no clothes,” said Mark Luschini, chief investment strategist at Janney Capital.
Higher rates could derail the housing market or spark a financial crisis in certain debt-ridden emerging market countries.
The risk of a policy misstep is exacerbated by the leadership change at the Fed, with Ben Bernanke set to hand the keys to the central bank’s $3 trillion balance sheet to Janet Yellen in January.

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