(Click here to enlarge the chart)
Hindsight is always 20/20. Fortunately in the world of investments, there are times when foresight can also come close to being 20/20. Ben Bernanke’s testimony before the Congress on May 22, 2013, was one of those times. In a similar fashion, the Federal Open Market Committee’s (FOMC) and Bernanke’s press conference Wednesday will simply sharpen the foresight for the clear-eyed investor.
I illustrate the point with five annotated charts in the sections below.
Tapering is not if but when
The Federal Reserve has been buying about $85 billion of securities per month. The Fed cannot continue to expand its balance sheet at the present rate. It has been obvious to me for a while, but the markets appeared to be taken by surprise when on May 22, Bernanke indicated that the taper may be coming.
The taper genie is out of the bottle and cannot be put back. The question is not if but when the taper will start.
Tapering is not tightening
In my analysis, the job ahead for the Fed is to clearly communicate to the markets that tapering is not tightening monetary policy. As an example, if the Fed reduces its purchases from $85 billion per month to $65 billion per month, the Fed will still be easing though at a slower rate.
Monetary tightening means an increase in benchmark interest rates. The Fed has clearly communicated that it will keep interest rates low until it reaches its target of unemployment rate of 6.5% and inflation stays below 2.5%….Read more at MarketWatch
Here are the links to the annotated charts:
Please click here for the annotated chart of Thailand.
Please click here for the annotated chart of TBT.
Please click here for the annotated chart of REIT ETF IYR.
Please click here for the long-term annotated chart of gold.
Please click here for the short-term annotated chart of gold.
