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Shifts in Federal Reserve Policy Mean Opportunities for Savvy Investors
The Fed ran the printing press last year, adding $1 trillion to the markets. Investors cannot overlook the effect that ending this will have on asset prices.
Tom Clancy    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

With all of the focus on Federal Reserve "statements," don't overlook the impact of Fed actions! The Fed ran the printing press last year, adding $1 trillion to the markets, which lead to the greatest multiple expansion since the tech bubble. That program is winding down and will end in a matter of months. Whether interest rates increase at some point after that or not, an investor cannot overlook the effect that ending the program -- which was implemented with the specific intention of increasing asset prices -- will have on asset prices.

Investors have been in a constant state of cognitive dissonance as asset prices race higher but economic fundamentals remain tepid. Since the crisis policies that have fueled asset reflation are ending, it would be prudent for investors to reduce risk exposures as they navigate the uncertainty of this policy transition. The effort being made to soothe the market in the wake of Chairman Janet Yellen's comments yesterday (March 19) should tell you that the the financial markets and the US economy are fragile. Investors have never been in this position before, and no one knows whether asset values can hold without the support of excess liquidity. While the substance of the Fed statements were not tremendously different than what was expected, I think what investors saw yesterday was prudent risk management as the markets sit near all-time highs and face the uncertainty created by a shift in policy. Sharp investors will understand that this uncertainty creates opportunities, and I have mentioned before on the Buzz & Banter where I am looking for them. Investing is not a race, and managing risk is a critical skill that should help preserve the returns earned in recent years.

Twitter: @Honest_T

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No positions in stocks mentioned.

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.

Shifts in Federal Reserve Policy Mean Opportunities for Savvy Investors
The Fed ran the printing press last year, adding $1 trillion to the markets. Investors cannot overlook the effect that ending this will have on asset prices.
Tom Clancy    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

With all of the focus on Federal Reserve "statements," don't overlook the impact of Fed actions! The Fed ran the printing press last year, adding $1 trillion to the markets, which lead to the greatest multiple expansion since the tech bubble. That program is winding down and will end in a matter of months. Whether interest rates increase at some point after that or not, an investor cannot overlook the effect that ending the program -- which was implemented with the specific intention of increasing asset prices -- will have on asset prices.

Investors have been in a constant state of cognitive dissonance as asset prices race higher but economic fundamentals remain tepid. Since the crisis policies that have fueled asset reflation are ending, it would be prudent for investors to reduce risk exposures as they navigate the uncertainty of this policy transition. The effort being made to soothe the market in the wake of Chairman Janet Yellen's comments yesterday (March 19) should tell you that the the financial markets and the US economy are fragile. Investors have never been in this position before, and no one knows whether asset values can hold without the support of excess liquidity. While the substance of the Fed statements were not tremendously different than what was expected, I think what investors saw yesterday was prudent risk management as the markets sit near all-time highs and face the uncertainty created by a shift in policy. Sharp investors will understand that this uncertainty creates opportunities, and I have mentioned before on the Buzz & Banter where I am looking for them. Investing is not a race, and managing risk is a critical skill that should help preserve the returns earned in recent years.

Twitter: @Honest_T

< Previous
  • 1
Next >
No positions in stocks mentioned.

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.

Daily Recap
Shifts in Federal Reserve Policy Mean Opportunities for Savvy Investors
The Fed ran the printing press last year, adding $1 trillion to the markets. Investors cannot overlook the effect that ending this will have on asset prices.
Tom Clancy    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

With all of the focus on Federal Reserve "statements," don't overlook the impact of Fed actions! The Fed ran the printing press last year, adding $1 trillion to the markets, which lead to the greatest multiple expansion since the tech bubble. That program is winding down and will end in a matter of months. Whether interest rates increase at some point after that or not, an investor cannot overlook the effect that ending the program -- which was implemented with the specific intention of increasing asset prices -- will have on asset prices.

Investors have been in a constant state of cognitive dissonance as asset prices race higher but economic fundamentals remain tepid. Since the crisis policies that have fueled asset reflation are ending, it would be prudent for investors to reduce risk exposures as they navigate the uncertainty of this policy transition. The effort being made to soothe the market in the wake of Chairman Janet Yellen's comments yesterday (March 19) should tell you that the the financial markets and the US economy are fragile. Investors have never been in this position before, and no one knows whether asset values can hold without the support of excess liquidity. While the substance of the Fed statements were not tremendously different than what was expected, I think what investors saw yesterday was prudent risk management as the markets sit near all-time highs and face the uncertainty created by a shift in policy. Sharp investors will understand that this uncertainty creates opportunities, and I have mentioned before on the Buzz & Banter where I am looking for them. Investing is not a race, and managing risk is a critical skill that should help preserve the returns earned in recent years.

Twitter: @Honest_T

< Previous
  • 1
Next >
No positions in stocks mentioned.

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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