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Wall of Worry: No Taper Tantrum Here!

By

Who's afraid of the Big Bad Taper? Not global equity markets, and not the US indices.

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The taper announcement. It was unexpected but it happened, and the markets (high-pitched, sotto voce) "loved it." Who's afraid of the Big Bad Taper? Not the global equity markets. Not the Dow (INDEXDJX:.DJI), S&P 500 (INDEXSP:.INX), and Nasdaq (INDEXNASDAQ:.IXIC) stock market indices, either. It helps that we had a few false starts to prepare ourselves for this moment. So bring on another one, but tell us first this time, please.

Before you think you've heard the last of the word "taper," keep in mind that there will now be a monthly debate on when and how much the next one will be until the Fed has made "all gone." And then we start the interest rate-increase vigil. This should all end around 2018 or so. Ahh, certainty at last.

While the Wall stays at an average elevation of 16 worries, this may not last for long. More worries coming? Nope. The next month or two could see it lose Sequester II – Son of Sequester, the Debt Ceiling, Investor Sentiment, and maybe more, leaving us dangerously close to The Perfect Ten a.k.a. the goldilocks level. Not too high, not too low…but for how long? We're not there yet, but it's something to think about -- or worry about, for all of you true believers who want to get a head start.

Here's a quick look at the worries facing stock market investors. Click on the image below for an interactive version of this week's Wall of Worry, or scroll down for the text-only version and an explanation of how the Wall works.



QE: Now that it has begun, the word "tapering" has officially made it into the Lloyd's Wall of Worry Hackney Hall of Fame, along with "Kicking the Can," "Great Rotation," and "Wall of Worry." Uh-oh.

UNEMPLOYMENT: Extended unemployment benefits may end with a knock-on effect on the unemployment rate. The question is, will it go up or down?

INVESTOR SENTIMENT: Happy days are here again, though we really don't know why and are afraid to find out…

EUROPEAN ECONOMY: Big consumer-confidence number coming on Friday. Are there still consumers living in Europe?

HIGH-FREQUENCY TRADING:
Lloyd: Anything about high-frequncy trading in the Volcker Rule?
HAL: Nope.
Lloyd: You pleased?
HAL: We all benefit when the financial markets are stable and rational and--
Lloyd: Don't even start with that.

CHINA: Government numbers say the economy is fine, but feet on the ground are feeling tremors. It's a pick 'em.

GLOBAL ECONOMY: Hoping Santa leaves a sack of 2014 GDP growth for the major developed nations, thereby making all the emerging-economy kids squeal with joy.

BONDS: When you get to the fork in the road…take it.

CONSUMER CONFIDENCE: Looking good, but we get the real-deal money-where-your-mouth-is tally on December 26.

RETAIL SPENDING: My kids are doing their part, thank you very much.

CONGRESS: Strutting around and "taking care of business…!"

US ECONOMY: The under-the-radar Architecture Billings Index (architects filing plans for customers who may build) slips below 50, signaling a potential decrease in spending. Or a shortage of stamps.

SEQUESTER II: Lost some of its teeth in the budget deal. By early next year we should know if they were baby teeth or fangs.

EMERGING MARKETS:
Wake me up in 2014…but only with good news.

ECB: The currency markets are pushing up the euro again. Thoughts about that action, Mr. Draghi?

DEBT CEILING: "Raise the roof!"

What Is Lloyd's Wall of Worry?

by Lloyd Khaner

Welcome to my at-a-glance guide to the issues facing investors this week -- a unique tool for traders and money
managers.

Typically the term "wall of worry" refers to the entire body of concerns influencing stock market action. When the wall is high, meaning the market is nervous, stocks tend to get cheaper.

This wall of worry is even more specific. Every week I list the exact concerns in the marketplace and use the list to help me make buying and selling decisions. As I like to say, "Buy fear, sell cheer."

In other words, once the the wall rises above 15 blocks, start looking for deals. If the worry count sinks below 10, consider selling; prices have likely peaked.

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Positions in SPY, DIA, QQQ, GLD, TBF, IWM, FEX, EEM, EUO.
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