Here’s the news of the week – and how we see it here at Mcalvany Wealth Management:

A Brave New Fed? We Have Our Doubts…

It’s not the Fed we used to know. This one tapered its asset purchases yet again – another $10.0 billion to $65.0 billion/month – in the latest FOMC meeting this week. This came as a bit of a surprise, but it is what it is.

As to why the Fed is pursuing this route, given the turmoil it seems to be causing in stocks and emerging markets, we can only guess. But bonds are up, which, last time we checked, is high on the Fed’s list of priorities as a means to stimulate the economy. This is something the Fed failed to achieve last year, despite several attempts. In any case, rates are trending lower again, and have fallen from just over 3.0% (on 10-year T-notes) to 2.64%, year to date. Whether Treasury rates can muster new stimulating lows remains to be seen, but tapering may continue for the time being – as long as rates remain favorable – even if at the expense of stocks.

MWM 14, 1-31 Box ScoresAdmittedly, it’s a pretty thin theory, since it’s a dangerous game the Fed would be playing amid such a highly leveraged stock market. But we do believe the Fed is more concerned about bonds than stocks – or at least it should be, given that debt has been the very life-source of recent so-called recoveries.

US economic data is of no help to stocks at the moment, though stocks spiked for a day on the heels of what appeared to be decent 4th quarter GDP growth of 3.2% – 0.42% of which is attributed to an inventory build-up. December durable goods orders (-4.3%) and pending home sales (-8.7%) served as offsets.

The price action for gold and silver was rather disappointing in response to the aforementioned GDP figures Thursday, though the precious metals on the whole are responding positively (along with bonds) to negativity in stocks. Incidentally, silver owned in Exchange Traded Products is expanding at a record pace. At 18,525 metric tons, silver stockpiles are just 0.6% shy of the highs set in April of 2011. In any case, jitters in the metals may be front-running possible stock gaming, or at least low levels of visibility heading into February, before reality strikes again in March – though that’s speculation on my part.

Best regards,

David Burgess
VP Investment Management