***Special Fed Day Alert. No Rate Hike But Changes to Balances Sheet Announced***

Behavior Models for the Day

As with every Federal Open Market Committee (FOMC) statement day, there is a model for the stock market to follow pre and post announcement. Certain environments have very strong tendencies while others do not. Seven meetings ago was one of the rare times where the models strongly called for a rally on statement day which was correct as well as a decline a few days later which was also correct.

Today, as with most statement days, the first model calls for stocks to return plus or minus 0.50% until 2:00 PM. There is a 90% chance that occurs. If the stock market opens outside of that range, there is a strong trend to see stocks move in the opposite direction until 2:00 PM. For example, if the Dow opens down 1%, the model says to buy at the open and hold until at least 2:00 PM.
The next model calls for stocks to close higher today and rally after 2:00 PM. That is usually a very strong trend, 80%+, however with the Dow up 8 straight days, the bulls exhausted a lot of energy and that trend’s power has been muted significantly to less than 50%. That’s not exactly the kind of trend worth trading.

Finally, there may be a trend setting up for a post statement day decline, but there are a number of factors that still need to line up.

No Rate Hike But Balance Sheet Taper…

The good news is that short-term interest rates will not be moving higher at 2:00 PM. That will likely happen at the December meeting. The bad news is that Janet Yellen is going to formally announce the Fed’s plan to begin to reduce its $4.47 trillion balance sheet of treasury and mortgage backed securities. No one will be surprised with that announcement. I say it’s bad news because the economy is finally starting to show some better growth and I have my doubts whether that will be sustainable with even tighter monetary conditions.
Regarding Yellen’s plan, I expect the Fed to cease the reinvestment of certain instruments, if not all, to the tune of $300 to $500 billion a year. On a $4 trillion account, that doesn’t seem like a lot of money but it certainly is in absolute terms. Yellen has also stated publicly that she does not expect a return to its pre-crisis $900 billion, all treasury bill balance for the foreseeable future.
Velocity of Money Still Collapsing

Below is a chart I have shown at least quarterly since 2008. With the exception of a brief period from mid 2009 to mid 2010, the velocity of money was, is and will continue collapsing. In the easiest terms, M2V measures how many times one unit of currency is turned over a period of time in the economy. As you can see, it’s been in a disastrous bear market since 1998 which just so happens to be the year where the Internet starting becoming a real force in the economy. Although it did uptick during the housing boom as rates went up, it turned out to be just a bounce before the collapse continued right to the present.
This single chart definitely speaks to some structural problems in the financial system. Money is not getting turned over and desperately needs to. The economy has been suffering for many years and will  not fully recover and function normally until money velocity rallies.
It would be interesting to see the impact if the Fed stopped paying banks for keeping reserves with the Fed. That could presumably force money out from the Fed and into loans or other performing assets. It continues to boggle my mind why no one calls the Fed out on this and certainly not Yellen at her quarterly press conference.

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Fed Statement Day Trend

That certainly felt like a quick six weeks since the Fed’s last statement day and press conference! Today, Yellen & Co. conclude their two day meeting with a statement to be released at 2:00 pm est and no press conference. As has been the case since the first taper last December, the Fed will reduce their assets purchases by another $10 billion to $25 billion per month on their to wrapping up quantitative easing this fall.

There has been a strong and playable trend during Fed statement days and today that trend is live. Stocks typically trade in a -.50% to +0.50% band until after 2 pm and then close today in the green. This trend has been successful more than 70% of the time since 2007. It has been noted of late that stocks push higher straight into the announcement and then sell off  through the close but still end higher.

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Much Ado About Nothing from Yellen & Fed Today

My how time flies…

It’s Fed decision day again with Janet Yellen set to announce another $10 billion cut from bond purchases, keeping the FOMC on pace to wind down QE Unlimited later this year. After the 2pm announcement, Ms. Yellen will head over to the always entertaining (NOT) press conference.

One thing I am sure of is that the Fed chair will not commit another rookie, foot in mouth, Joe Biden esque’ gaffe by committing to a specific timeline for interest rate hikes. Everyone knows that rates hikes are coming next year although I continue to disagree 100% as I have since Bernanke first floated the QE taper trial balloon in May 2013.

Until the Fed’s statement is released, we can expect a very quiet stock market, +-0.50%, as we historically see. After 2pm, it’s the norm to see some fireworks in both directions although the trend says that stocks should finish in the black on the day.

For a change, I am more interested in how bonds and gold react to the FOMC announcement than stocks. The stock market remains on solid footing and the bull market should continue into 2015. Bonds and gold are in a different position, especially in the short-term…

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No Foot in Mouth for Yellen Today

The Fed concludes their two day meeting today with the market expecting no increase in interest rates and another $10 billion tapered from their QE program. That would leave the Fed to continue purchasing treasury bonds and mortgage backed securities to the tune of $45 billion per month.

After Janet Yellen’s rookie gaffe six weeks ago during the press conference, the chair is lucky that there won’t be another press conference today. Rather, the Fed will release a statement with no opportunity for Ms. Yellen to be cornered again. All eyes will be acutely parsing every word in the statement for hints of future rate hike and acceleration in the taper.

It’s no secret that I am 100% against ANY taper. I am probably the ONLY person on earth who feels that way which given my contrarian nature, makes me confident in my view. It’s a good topic for a full article. You can watch my recent Yahoo Finance Breakout segment, Fear the Taper, for more.

The stock market model for today is lots of choppy action, plus or minus 0.50%, and then a rally. History shows there is a 70+% chance of closing higher today.

Janet Yellen’s First Fed Statement Day

My how time flies! We just said goodbye to Ben Bernanke and hello to Janet Yellen and now it’s time for Fed day again. It is widely expected that the FOMC will taper another $10 billion to $55 billion per month in quantitative easing as it continues down the path to wrapping up QE by the end of the year. There is also an expectation that the Fed changes their interest rate scenario from quantitative to qualitative with Yellen giving an update on the 6.50% unemployment rate threshold.

I am sure the three blind men of Fisher, Plosser and Lacker will argue for a more aggressive scenario, but let’s remember that these are the same ostriches who wanted to raise interest rates during 2008 when the financial markets were on the verge of breaking with a serious threat to what we call capitalism. It must be nice to continue to always be wrong yet enjoy the current compensation and future retirement perks of being a regional Fed president. Only in America!

The model for today is muted action in the markets until the announcement at 2pm and then fireworks into the close. Janet Yellen begins her first press conference at 2:30pm so that should be a lot more than just interesting.

Regarding the stock market, history suggests a 73% chance of an up day.

After the markets get by today, we should see another round of new highs in the major indices, including the Dow which has lagged all year.

2014 Fearless Forecast

It’s really embarrassing that it’s been almost two months since I began speaking about my thoughts for 2014, yet I have been unable to mass distribute them. Shame on me! So far, to those folks who have read them, the comments and questions have been great. Keep them coming!

Regular readers of Street$marts and this blog won’t be surprised at most of the forecast, but I did throw in a few new items. As always, I had a lot of fun thinking about it and creating it, although it has no bearing on how we manage money for our clients.

U.S. Stock Market – After an epic 2013 for the stock market, what can we expect for an encore? To begin with, it’s a mid-term election year and the second year of the president’s term. Historically, that hasn’t been so kind to investors with some of the largest declines in history as well as the end of some bear markets. More recently, however, 2010 and 2006 were kind in the end, but volatile during the year.

Looking at the big picture, there are no signs yet that the old and wrinkly bull market is ending anytime soon and my analysis still has upside projections to at least 17,000. We typically see a number of warning signs with various leads times, but only one of those are in place today and that may be corrected. Those warnings signs may set up later, but at this time, stocks remain the place to be on any dips. With that said, a routine, normal and healthy 5-10% bull market pullback should be seen during the first quarter that leads to more all-time highs later in the year.

On the index front, although the major US indices are highly correlated to each other, it’s time for the Russell 2000 index of small caps to cede leadership to its large and mega cap cousins.

U.S. Stock Market Sectors – Technology is usually the group of choice each January and I continue to rank it as a market performer at best. I wouldn’t run out and load up on this sector unless we saw a sizable market correction. As the economy and markets are late in the cycle, sectors like REITs and energy should provide solid relative performance, especially later in the year. Even perennially hated utilities should grab a bid.  With my long-term positive stance on the dollar, it makes liking commodities more difficult but I do believe 2014 will reward buying the dip and selling the rip in this area.

On the wild side, biotech, pharma and healthcare should go parabolic during the first half of the year with the social media group also a possible candidate. Investors should keep in mind that parabolic rallies like the Dotcoms never, ever end by going sideways to rest.  They end in disaster and ruin like we saw with crude oil in 2008.

It’s rare for me to really hammer on sectors in the annual forecast, but after five years of strong outperformance, I am very negative on consumer discretionary and retail. I think 2014 will be the beginning of the end for this trade and similar to my stance on the small caps in general, I would pair this with a long in large or mega caps.

All in all, 2014 looks to be more of a digestive year, like 2011, 2004 and 1992 than a full fledged bull or bear year.

Volatility – There are many ways to discuss volatility, but the one that resonates well with me is that of a sine wave. It moves fully from one side all the way to the other, like a pendulum. While the market may not operate so neatly, low periods of vol are usually followed by higher periods of vol and vice versa Put another way; volatility compression leads to volatility expansion and volatility expansion leads to volatility compression.

2012 was largely a non volatile year, but 2013 was downright boring from a volatility standpoint. That can be traced to the Fed’s QE Unlimited, which will be going away. So 2014 looks to be a whole lot more volatile than 2013 and probably 2012. If so, that will likely lead to 2015 being even more so as volatility normalizes.

In short, the investment play is to buy vol anytime it heads back to the low end of the range and sell it into spikes, which there should be many.

Long-Term Treasuries -I am so beyond sick and tired of hearing the pundits proclaim that “bonds are in a bubble”. Statements like those absolutely wreak of ignorance. Bubbles are all about greed, clamoring and fear of missing the boat. They are formed in many stages with the final one being a total rush into the asset, primarily by the public. During the modern investing era, new products are launched to give greater access to Main Street. Your neighbors all own the asset and it’s all over the media. There is nothing about bubbles that has pertained to the bond market and there never will be.

The secular bull market in bonds may have officially ended in mid 2012,  but that doesn’t mean and shouldn’t mean that interest rates are heading higher in spike fashion. Clearly, over the coming years and decades, rates will normalize and head back to mid single digits unless the Fed makes a huge blunder like the Arthur Burns led Fed did in the 1970s.

I envision rates heading higher like we saw in the 1950s and 60s, slowly and gradually. Two steps up and one step back. We have already seen the 10 year note yield double as the first stage of the bear market began. I do not believe we will see anything close to a doubling anytime soon. Rather, as I first wrote about and publicized last November, bond market sentiment had become so negative that a rally in bond (decline in yields) wasn’t too far off.

For 2014, the bond market should offer a solid risk/return profile, at least for the first half of the year as inflation remains nearly non-existent, our economy slows and Europe deals with deflation, all against the backdrop of the Fed reducing its purchase of treasuries, for now. While the 3.50% to 4% area on the 10 year looks like a good intermediate-term target, it should not get there right away and investors should not become perma bears on bonds.

Corporate bonds – This group has seen a much stronger rally from their 2013 lows than their treasury cousins, but still behaves well and should see strength during the first half of 2014. Further down the risk spectrum, high yield bonds will continue their 2013 position of lagging and underperforming as the slightest ripple in the liquidity stream could upset this apple cart quickly.

Dollar – I am posting the exact comments as I did last year. Since THE bottom in 2008, the dollar has been in a trading range which I have stated is the beginning of a new, long-term secular bull market. Anyone who has bought strength or sold weakness has been punished and that’s likely to continue for a while before the greenback finally breaks out above 90 on its way to target number one at 100 over the coming years.

I remain very bullish on the buck long-term and believe it can be bought into weakness for a long time, especially given the Fed’s exit from QE, the ramping up of QE in Japan and the anticipated QE in Europe.

Gold – The yellow metal’s secular bull market is not over and it will take another year or so to reinvigorate it. Gold saw twin price lows in the $1180 area that should lead to test targets of $1360, potentially $1440 with a chance of seeing north of $1500 before ultimately turning lower again. When the ECB hops on board the QE bandwagon, look for gold to break out above $2000 later this decade on its way to $2500 and higher.

Commodities – I continue to favor the agricultural and tropical commodities like wheat, corn, beans, sugar, coffee and cotton over the rest with corn being among the candidates for trade of the year. They have been under pressure for a while and weakness should be viewed favorably.

Inflation – I still feel like a broken record year after year after year after year, but I don’t have many concerns about inflation, at least not until we get to the other side of the next recession. The Fed is trying to engineer some healthy inflation, very unsuccessfully I might add. $5 TRILLION in QE didn’t produce any. Money velocity continues its downward spiral. Housing prices are stable. Wage growth is essentially zero and the banks are holding trillions of dollars on reserve with the Fed. This economy still has rolling whiffs of deflation, but nothing compared to the outright deflation in Europe and Japan.

Economy – As we start another new post financial crisis year, no one should be shocked to learn that the masses are positive on our economy yet again with projected GDP growth rates in the mid 3s. I think I have said it every year since the recovery began, but I will repeat it again. We are living through the typical post financial crisis recovery that teases and tantalizes on the upside and worries and frets on the downside. As with other post financial crisis recoveries around the globe, our economy will not return to an historical sense of normalcy until we get to the other side of the next recession.

Federal Reserve – It’s a whole new ball game for the Fed in 2014; or is it as Janet Yellen takes over for one of my financial heroes, Ben S. Bernanke. I believe history will judge Bernanke as the single greatest Fed chair of all-time who should have been given hazard for having to sit and endure so many hours in front of the incompetents in Congress.

With all of the permanent voting members but Jeremy Stein in the dove camp, Richard Fisher and Charles Plosser will have their hawkish hands full this year dissenting on any vote that doesn’t involve continued tapering. Keep in mind that Fisher, Plosser and Jeff Lacker were the three amigos who fought cutting rates and turning on the fire hoses during the summer of 2007 when the sub prime crisis was unfolding.

The Fed’s multi-year money printing program or QE will sadly come to an end in 2014 reaching my longstanding target of $5 trillion. I vividly remember throwing out that number almost four years ago on CNBC’s Squawk Box and was almost laughed off the show. That one comment generated more emails than any other forecast I have made on TV.

As I have said for more than a year, I absolutely do not believe the Fed should even consider tapering until we get to the other side of the next recession, even though QE is having diminished results. It’s the wrong thing to do at the wrong time. It was wrong in 1937 and that caused the Great Depression Part II. It was wrong in Japan more times than I can count over the past 25 years. The Fed should not stop QE.

Obviously, I am also 100% against even considering raising short-term interest rates at all in 2014 and likely much longer into the future. I am sure the three amigos of Plosser, Fisher and Lacker are foaming at the mouth in anticipation of higher rates, but if history has shown us anything about these bankers, they are usually dead wrong.

Unemployment – If you told me that the unemployment rate would fall towards 6.5% in 2013, I would have fallen on the floor and passed out from shock. The economy would have to have grown at 4% or more. Had I any inclination that the labor participation rate would fall to levels not seen since the mid 70s, I would have questioned the accuracy of the government’s numbers. Both occurred last year and those trends should continue in 2014 creating a conundrum for the Fed and economists. The raw unemployment number is strong, but certainly not for the right reasons.

Japanese Yen – And I thought Bernanke’s QE was the greatest financial experiment of all-time. Silly me! That title now belongs to the Bank of Japan. Not only is the yen in a confirmed bear market after a 15 year secular bull market, but the Bank of Japan remains committed to an historic money printing program that will dwarf that of the Bernanke Fed.

It’s Abe, Abe and more Abe. The yen has much, much farther to fall and all rallies can be sold until further notice. The BoJ has learned from their mistakes of the past when they prematurely ended QE. Look for them to go overboard in hopes of ending what has essentially mounted to 25 years of economic malaise and rolling bouts of deflation.

As the world saw in the previous “greatest financial experiment of all-time” with leverage, mortgages, artificially low rates, the alphabet soup of exotic financial products that no one understood and on and on, they rarely end well. Long-term, I have serious doubts, but for now…

Japan – If the Bank of Japan is going to print baby print, it’s very difficult not to be positive on the Nikkei for 2014. If their economy doesn’t respond quick enough or if their markets fall too fast, the BoJ will just crank it up a notch until it works. I remember arguing on TV that investors should never fight with the guy who owns the printing press and that certainly holds true in Japan. The Nikkei should be a leading developed market index in 2014.

Europe – Euro zone problems are far from over, but have taken a breather over the past year. ECB chief Mario Draghi’s jawboning to save the Euro currency has certainly worked in the short-term with sovereign bond yields declining precipitously in the PIIGS countries. At the same time, however, austerity is causing all sorts of economic issues with deflation being chief among them. If that genie gets out of the bottle in meaningful way, look out below!

Additionally, all is not well beneath the surface as a major, major crisis looms in France possibly late in 2014, 2015 or even into early 2016. Germany was certainly not happy about the bailouts in Greece and Cyprus or the ECB programs designed to save Spain and Italy.  The big test comes when the Germans have to figure out how to save a country that is too big to fail and too big to save. I smell a constitutional battle brewing to allow the ECB to outright print money.

Emerging Markets – Coming off an horrific 2013, emerging markets begin the new year on their heels with continued unrest, currency dilemmas and slowing growth. I will go out on a limb and forecast that the sector sees a significant low in the first half of 2014 and outright leadership and strength during the second half of the year led by the secondary countries. The macro trade would be owning a broad emerging markets ETF against a short in the US small caps.

Bernanke’s Swan Song at Interesting Crossroad

On Monday, I discussed how a very short-term rally was close at hand. I continued that yesterday morning about the prospects for a Turnaround Tuesday rally. The bulls came back to work on Tuesday in a very underwhelming way. The open was without conviction. Volume was anemic, further solidifying my stance that the market isn’t close to a low of any significance. With Apple’s disaster, stocks had a chance for a big gap down and short-term washout. But that wasn’t to be.

Today, we have the conclusion of Ben Bernanke’s final meeting as Chairman of the Federal Reserve. Fed statement day is typically a green day for stocks, especially when they are not at new highs, which they are not right now. The short-term snap back is supposed continue a bit longer before rolling over again and revisiting the recent lows, however not doing so would only add to my current intermediate-term negativity on the market.

Regarding the Fed, the market is expecting another $10 billion in taper to $65 billion per month. It’s no secret that I think any taper is absolutely the WRONG move and our markets and economy will suffer consequences from this. I have heard from people that the Fed is watching the stock market decline and will postpone the next taper. First, I think that is ludicrous. Stocks are up 10%+ just from October, let alone the roughly 150% from the March 2009 bottom. The Fed would lose even more credibility by worrying about a 3% decline without any signs of stress in the much more important credit markets. Sentiment has just notched back to neutral from being overly bullish for months. There is no way the Fed really cares about the stock market at this juncture.

It’s going to be an interesting day, especially after 2:00pm and coming from what looks like a very weak opening!

Stocks Take It on the Chin, But…

Since the start of the year, I have been very cautious on the stock market, primarily due to market sentiment being at rally killing levels along with finally losing the tailwind of the positive calendar effects. The risk/reward looked so unfavorable that we took across the board action in many of our portfolios raising cash to even 100% in some cases, levels not seen since 2012.

On average the major indices have gone nowhere for the past month with the Dow being the weakest and the Nasdaq 100 being the strongest. Over the past two days, the stock market has fallen with a slew of international news and earnings being blamed. That’s only partially true. If stocks were emerging from a low, they would have ignored the “bad” news and powered higher. Stocks were looking for an excuse to pullback and they got it.

My target has been for a 5-10% decline, the largest since 2012, and that’s still the case. I reference the lows hit in December when the Fed announced the taper as price levels to watch in a general sense.

While the carnage has been real this week, market internals remain very solid and should lead to much higher prices after the weakness ends. I remain steadfast in my belief that while the bull market is old and wrinkly it is very much alive. The DNA markers we typically see when a bull market ends are simply not there at this time and they will take weeks, months or even quarters to appear.

For now, the short-term decline continues and we will begin looking for signs of a bottom at the -5% mark.

Ho Ho Ho! Santa Bernanke Arrived

Greetings from usually cold and snowy, but recently tropical and wet Vermont! After three days of skiing in the rain, Old Man Winter came back and cut the temps by 70%! From short sleeve shirts and a light jacket, I am gearing up in full winter weather garb for wind chills around 0 today on top.

Ben Bernanke did it! The master. The maestro. He saw the downside of announcing a taper to their $85B a month in asset purchases, but felt strongly it needed to be done. As much as I really like and admire him, I respectfully disagree. Anyway, the man who has threaded needle after needle after needle threaded his final one last week and it was picture perfect, another beaut!

With enough hawks on the committee to push for the taper, Bernanke gave them what they wanted but also prevented the very nasty negative market reaction so many feared by pushing off the raising of rates farther into the future. It was genius and after a few minutes, the markets celebrated in a huge way with the celebration still ongoing. The Fed’s move also solidified a trend that I and many others have spoken about for some time, the strength of statement day in the stock market. With some qualifiers, it’s been like shooting fish in a barrel, the proverbial layup in trading.

Fed statement day last week also kicked off the traditional Santa Claus Rally. I have done an incredible amount of research in my 25 years in the business, but as I think about it, none more in the seasonal department than December and early January trends. And I know I am far from alone. To date, the stock market has pretty much followed historical patterns that included a mild early December decline to a mid December low from which the year-end rally launches to the most seasonally positive time of the year.

Bernanke may be given the credit (or not), but stocks are in the midst of the Santa Claus Rally that is supposed to last into the New Year. That doesn’t mean that every single day will be up! Depending on when you begin your study and which instrument you use, the positive seasonality can start anywhere from December 17 to the 24 and last until December 30 or through the first week of the New Year. On the flip side, as we recently saw in 2007 is that the famous adage usually works; If Santa Claus should fail to call, bears may come to Broad and Wall, meaning that if the traditional year-end rally does not occur, it is a warning sign to look closely at the market for winds of change.

Do NOT Taper

As difficult as it was at the time, quantitative easing (money printing) has now become an acceptable weapon in the Fed’s arsenal. Throughout my life, I was always taught, wrongly so, that printing money always leads to inflation and sometimes hyperinflation. And that all we needed to do was look at the Weimar Republic or Argentina or most recently Zimbabwe for examples of a currency gone rogue.

When the Fed cut rates to essentially zero, critics and Doomsdayers came out of the woodwork crying that Bernanke was “out of ammunition” and that “the Fed was now impotent”. The initial decision to print money must have been one of the most difficult debates that any Fed has ever faced. I imagine that the FOMC meetings were only a small part of the spirited discussions that went on during late 2008. But in the end, after rates are zero, Bernanke & Co. used QE as a way to effectively continue cutting rates until the economy and markets began to stabilize and turn.

Having been in the deflation camp since 2007 and remain there today, I have always said that printing money would not even slightly increase the risk of problematic inflation. I can’t tell you how many times I did interviews on CNBC, Fox Business and Yahoo Finance where I defended this very minority view against the masses. And when I boldly declared after QE I that the Fed’s balance sheet would eventually approach $5 TRILLION, I was literally laughed at and dismissed as a nut job (well, part of that may be true!). Furthermore, as longtime readers know, I turned very bullish on the dollar, long-term, in early 2008 and have stayed that way ever since. It was such an easy argument to say that all this money printing would devalue the greenback, but the truth of the matter is that the U.S. dollar bottomed in March 2008 and with almost $5 trillion being printed since, it has never gone lower than that level. Once again, the masses were wrong.

Once a Fed, or anyone else in my opinion, does something that is so distasteful, like having to print money, the hardest part is over, the first act. It makes the next and the next and the next much easier. After QE I ended and people argued against any more printing, it wasn’t a stretch to believe that a whole lot more was on the way. In fact, I would and have argued that once a Fed begins the process, they absolutely MUST see it through to the end, much longer than anyone imagines.

For the fifth time since Bernanke first hinted at tapering in May, the Fed will have the opportunity to begin the scaling back of asset purchases today. I firmly believe they should NOT taper! While the employment picture is certainly much improved, it is far from “escape velocity” with the participation rate at extremely low levels. After a “normal” recession, GDP growth should be double where it is today and remains frustratingly below trend levels. And that says nothing about the inflation rate and money velocity which indicate we should be worried more about deflation than any kind of problematic inflation. No sir. The Fed should NOT taper now or any time in the near future.

Let’s not repeat the mistakes made by FDR in the late 1930s when the government caused part II of the Great Depression by pulling stimulus and raising taxes. And let’s not let the Japanese debacle of starting and stopping and starting and stopping QE become our pattern. From my usual minority seat, my thesis is that the Fed should not begin to taper until we get to the other side of the next recession. Said another way, the Fed shouldn’t consider scaling back their asset purchase program until at least 2015 or later. Doing so now or early next year will jeopardize the flailing recovery and have a very negative impact on the financial markets over the intermediate-term.

I have heard plenty of people say that “tapering isn’t tightening”. I vehemently disagree. If a crack addict smokes 12 times a day and then is cut to 10 and then 8 and then 6 times a day,  his body will certainly feel the reduction. As I have said many times before, our markets have become addicted to QE and are not healthy enough on their own to survive without it.