On Demand

The Fed Won't Tighten Today, Maybe Not This Year

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These are words that no investor wants to hear a Fed Chairman say: "an ongoing evaluation of the efficacy, costs, and risks of asset purchases might well lead the Committee to taper or end its purchases..."

Ouch. Those words triggered the worst two-day selloff in months, as investors worried that the quantitative-easing that has helped to fuel the rally in risky assets as about to come screeching to a halt.

So what's the risk here? Are the good times over for the foreseeable future?

A little perspective is needed here. Yes, we all know the third most important rule of investing (after Warren Buffett's first two rules of "Don't lose money" and "Don't forget rule number one"). "Don't fight the Fed."

And to this I would add "don't fight the European Central Bank, the Bank of Japan, or any other major central bank."

Does this mean we should sell out of risky assets? No, or at least not based on central bank action. The Fed is "considering" tapering its QE3 bond-buying program. But you cannot make a case that the Fed is getting hawkish, and neither is any other central bank in the world at the moment. Rates remain fixed at zero and the Fed's overall monetary policy is still nearly the loosest in its history.

Some of the hot money may leave the market, and a 7-10% correction wouldn't be surprising given how far and fast the market has risen in recent months. So, this may be a good time to do a little portfolio rebalancing or pruning. But it's certainly not a time for a major portfolio strategy shift.

I continue to recommend a long allocation to dividend-paying stocks such as those in the Vanguard Dividend Appreciation ETF (NYSE:VIG) and to master limited partnerships (NYSE:AMJ) and real estate investment trusts (NYSE:VNQ).

The Fed will tighten policy again...someday. But it's not today and probably not this year.

Sizemore Capital is long VIG, AMJ and VNQ

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KiraBrecht: Excellent piece Charles. Thank you. One of the keys to successful investing and trading is to stay calm and rationale when everyone else is panicking.
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About the Author

CharlesSizemore

Charles Lewis Sizemore, CFA, founder and editor of Macro Trend Investor (formerly The Sizemore Investment Letter), is dedicated to finding superior investments backed by powerful macro trends—before you hear about them on the nightly news or read about them in the newspaper or on the Internet. He has been a frequent guest on Bloomberg TV and Fox Business News, has been quoted in Barron’s Magazine, The Wall Street Journal,and The Washington Post and is a frequent contributor to Forbes Moneybuilder, GuruFocus, MarketWatch and InvestorPlace.com.

Charles is the co-author of Boom or Bust: Understanding and Profiting from a Changing Consumer Economy (iUniverse, 2008); and worked alongside best-selling financial author and economic strategist Harry S. Dent, Jr. in creating original research on the effects of changing global demographics on asset returns and economic growth. He also serves as the Chief Investment Officer of Sizemore Capital Management LLC,  a registered investment advisor.

His academic and real-life experience has given him a unique approach to investing: combining his insights into global macro trends with in-depth investor research. And he has developed a reputation for taking complex issues, recognizing long-term investment strategies, and then finding the hidden investing opportunities that he shares with investors.

Charles holds a master’s degree in Finance and Accounting from the London School of Economics in the United Kingdom and a Bachelor of Business Administration in Finance with an International Emphasis from Texas Christian University in Fort Worth, Texas, where he graduated Magna Cum Laude and as a Phi Beta Kappa scholar.

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