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Why Janet Yellen May Surprise and Not Taper Wednesday
The Fed could cite potential weakness in this sector for why more data is necessary before continuing along the same path.
Michael A. Gayed    

Hindsight bias makes surprises vanish.
--Daniel Kahneman
 
Expectations are high that the Fed will continue along its tapering path at this week's FOMC meeting. To review, the Fed has made it a point to say it wants out of quantitative easing. I believe much of this relates to the idea that continued balance sheet expansion is ultimately more of a risk to financial markets than most think. I've been talking to my colleagues Ed Dempsey and Charles V. Bilello this week, debating whether the Federal Reserve may actually decide to taper its tapering of bond buying and surprise investors. I stand alone in believing that Janet Yellen may decide to pause this time around.
 
Why do I think the Fed will surprise and delay its tapering course by a few months? Quite simply -- housing. There has been surprising deceleration as of late on that front, with consumer stocks anticipating some weakness in spending power.  If the stock market alone holds new highs but home values fall, then the wealth gap will only widen and counter Federal Reserve efforts to juice reflation. That is not to say that QE has helped to spark inflation. Several members of the Fed have just over the last few days expressed concerns over low inflation. But the point remains true that the hardest thing to do for the Fed is to do nothing, which means it will continue along with the wrong medicine because it's the only medicine it can administer.
 
This really should not seem so far-fetched. The Fed surprised in September last year by not tapering when everyone believed it would.  Instead, it waited until December to start the process. What's to say it won't pull the same trick again?

Take a look below at the price ratio of the SPDR S&P Homebuilders ETF (NYSEARCA:XHB) relative to the S&P 500 ETF (NYSEARCA:SPY). As a reminder, a rising price ratio means the numerator/XHB is outperforming (up more/down less) relative to the S&P 500.  A falling ratio means the opposite.



The market is anticipating further weakness in housing, which is a major pillar for the Fed and the economy. Could we very well see the Fed hold back, citing potential weakness in housing for why some more data may be necessary before continue along its path?  While many believe the odds are low to none, that may be precisely why the Fed surprises the market. The obvious is only obvious after the fact. If you were sitting in Yellen's shoes, you'd follow trends. So far, the trend in housing is far from being a friend to the Fed.

Twitter: @pensionpartners
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No positions in stocks mentioned.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Why Janet Yellen May Surprise and Not Taper Wednesday
The Fed could cite potential weakness in this sector for why more data is necessary before continuing along the same path.
Michael A. Gayed    

Hindsight bias makes surprises vanish.
--Daniel Kahneman
 
Expectations are high that the Fed will continue along its tapering path at this week's FOMC meeting. To review, the Fed has made it a point to say it wants out of quantitative easing. I believe much of this relates to the idea that continued balance sheet expansion is ultimately more of a risk to financial markets than most think. I've been talking to my colleagues Ed Dempsey and Charles V. Bilello this week, debating whether the Federal Reserve may actually decide to taper its tapering of bond buying and surprise investors. I stand alone in believing that Janet Yellen may decide to pause this time around.
 
Why do I think the Fed will surprise and delay its tapering course by a few months? Quite simply -- housing. There has been surprising deceleration as of late on that front, with consumer stocks anticipating some weakness in spending power.  If the stock market alone holds new highs but home values fall, then the wealth gap will only widen and counter Federal Reserve efforts to juice reflation. That is not to say that QE has helped to spark inflation. Several members of the Fed have just over the last few days expressed concerns over low inflation. But the point remains true that the hardest thing to do for the Fed is to do nothing, which means it will continue along with the wrong medicine because it's the only medicine it can administer.
 
This really should not seem so far-fetched. The Fed surprised in September last year by not tapering when everyone believed it would.  Instead, it waited until December to start the process. What's to say it won't pull the same trick again?

Take a look below at the price ratio of the SPDR S&P Homebuilders ETF (NYSEARCA:XHB) relative to the S&P 500 ETF (NYSEARCA:SPY). As a reminder, a rising price ratio means the numerator/XHB is outperforming (up more/down less) relative to the S&P 500.  A falling ratio means the opposite.



The market is anticipating further weakness in housing, which is a major pillar for the Fed and the economy. Could we very well see the Fed hold back, citing potential weakness in housing for why some more data may be necessary before continue along its path?  While many believe the odds are low to none, that may be precisely why the Fed surprises the market. The obvious is only obvious after the fact. If you were sitting in Yellen's shoes, you'd follow trends. So far, the trend in housing is far from being a friend to the Fed.

Twitter: @pensionpartners
< Previous
  • 1
Next >
No positions in stocks mentioned.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Why Janet Yellen May Surprise and Not Taper Wednesday
The Fed could cite potential weakness in this sector for why more data is necessary before continuing along the same path.
Michael A. Gayed    

Hindsight bias makes surprises vanish.
--Daniel Kahneman
 
Expectations are high that the Fed will continue along its tapering path at this week's FOMC meeting. To review, the Fed has made it a point to say it wants out of quantitative easing. I believe much of this relates to the idea that continued balance sheet expansion is ultimately more of a risk to financial markets than most think. I've been talking to my colleagues Ed Dempsey and Charles V. Bilello this week, debating whether the Federal Reserve may actually decide to taper its tapering of bond buying and surprise investors. I stand alone in believing that Janet Yellen may decide to pause this time around.
 
Why do I think the Fed will surprise and delay its tapering course by a few months? Quite simply -- housing. There has been surprising deceleration as of late on that front, with consumer stocks anticipating some weakness in spending power.  If the stock market alone holds new highs but home values fall, then the wealth gap will only widen and counter Federal Reserve efforts to juice reflation. That is not to say that QE has helped to spark inflation. Several members of the Fed have just over the last few days expressed concerns over low inflation. But the point remains true that the hardest thing to do for the Fed is to do nothing, which means it will continue along with the wrong medicine because it's the only medicine it can administer.
 
This really should not seem so far-fetched. The Fed surprised in September last year by not tapering when everyone believed it would.  Instead, it waited until December to start the process. What's to say it won't pull the same trick again?

Take a look below at the price ratio of the SPDR S&P Homebuilders ETF (NYSEARCA:XHB) relative to the S&P 500 ETF (NYSEARCA:SPY). As a reminder, a rising price ratio means the numerator/XHB is outperforming (up more/down less) relative to the S&P 500.  A falling ratio means the opposite.



The market is anticipating further weakness in housing, which is a major pillar for the Fed and the economy. Could we very well see the Fed hold back, citing potential weakness in housing for why some more data may be necessary before continue along its path?  While many believe the odds are low to none, that may be precisely why the Fed surprises the market. The obvious is only obvious after the fact. If you were sitting in Yellen's shoes, you'd follow trends. So far, the trend in housing is far from being a friend to the Fed.

Twitter: @pensionpartners
< Previous
  • 1
Next >
No positions in stocks mentioned.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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