Taper Tip ToePosted on December 19, 2013
Just when you thought it was safe to head off on Christmas leave, the US Federal Reserve goes ahead and tapers. The equity markets of course rose, which is the opposite of what they have done before every other taper rumor. That might be due the fact it is something of a taper tip-toe shuffle rather than a taper cliff dive that some people feared.
Prior to last night, the Fed was buying bonds at a rate of $85 billion USD per month. Now it is a measly $75 billion a month. The slow pace of this decline as well as the Fed’s promise to keep its benchmark rate low “well past the time that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below” the Fed’s 2 percent goal.
This means that the Fed isn’t going to stomp all over the recovery any time soon. It also means that the Fed will be providing stimulus for a long while yet, provided inflation stays low. And inflation has remained low without any hint of a rise.
The lessons from this are:
Staying in the market is a good idea.
Getting in after a good (almost 2%) rise last night means you missed a lot of fun. There is a solid chance the market will gap higher tonight (the announcement was relatively late in the day), thus meaning you’ll miss even more fun before you get in.
The US Federal Reserve isn’t stupid.
They aren’t in the business of flipping around and creating radical changes in policy in ways that lead to short-sighted self-harm. They aren’t the US congress after all. Expecting them to do otherwise is more than a little foolish.
The final link this morning is from a money manager with a tremendous track record, Mohammed El Arian from Pimco. His thoughtful summary is here.
About Caterer Goodman Partners
Caterer Goodman Partners is a Shanghai based wealth management firm established with a clear vision to provide a new level of personalized financial planning services for expatriates in Asia. Our financial advisors provide guidance for our clients in all areas of investment, specialising in managed accounts, money-market funds, retirement planning and alternative investments. At Caterer Goodman Partners, we offer our advice and experience to provide low cost, tax-effective and simple solutions to match our clients’ interests.
About Owen Caterer
Since graduation Mr Owen Caterer has worked with the Queensland Premier's Department in Trade Facilitation and then as a financial adviser in Shanghai from 2005 until 2010. He then rose to Senior Adviser, then Business Development manager and then to Chief Investment Officer responsible for portfolios to a value of US$280 million across Asia. Following that Mr Caterer left to found his own firm with a partner in the financial advisory and wealth management area. This focused on developing China and Asia's first fee-based financial advisory (rather than commission-based). This has grown to now have 8 staff and and managing almost US$35 million for clients throughout Asia. This business success was recognized as a finalist in the 2013 ACBA in the Start Up Enterprises category and are one of a small number of foreign managed firms to have a full asset management license in China. Owen has also been active in the community volunteering for the Australian Chamber of Commerce in Shanghai and acting as the Vice-Chair of the Small Business Working Group (2012-2014) and as the Co-Deputy Chair of the Financial Services since 2013 until the present. They have continued to grow their business and have now been selected as a small group of companies who are platinum members of the Australian chamber of commerce. The achievement they are most proud of is their efforts to reform the financial planning industry in China and push it away from a hard-sales commission driven model to a more ethical management fee and long term customer service model. Owen has a Graduate Diploma of Applied Finance from the Securities Institute of Australia of which he was a member as a Fellow of Finance for many years and also has an undergraduate degree from Griffith University in International Business. Owen's interests are tennis, running and his wife and two children. He speaks fluent Chinese, first arriving in China in 1997.
Tags: Caterer Goodman, China, China Expat, Market, Owen Caterer, Shanghai
Categorised in: Economic Commentary