Sunday 16 February 2014

What will happen to the market with J Yellen as the new Fed Chair?

Let's read carefully what Mitch Zacks has to offer.

Mitch wrote a weekly column for the Chicago Sun-Times and has published two books on quantitative investment strategies. He has a B.A. in Economics from Yale University and an M.B.A. in Analytic Finance from the University of Chicago.


If there is one thing markets hate more than anything is uncertainty and change. With Ben Bernanke being replaced as Fed Chair by Janet Yellen, the markets are going to have to digest a little bit of both. Although, it’s not exactly like Janet Yellen is unknown. She has been an active policymaker for a dozen years and for decades taught economics at the University of California, Berkeley, but you never know how sitting in that all important position will affect their policy decisions. 

Yellen’s First Test

Yellen faced her first major test this past week when she testified for the first time in front of Congress. Markets were waiting to see how she would handle herself as she faced a barrage of pointed questions from critical U.S. Lawmakers about the Fed’s unprecedented efforts to stimulate the economy and its oversight of banks.

Most likely due to her years of experience, she was able to remain calm under pressure and handle even the toughest of questions in a measured tone that the market liked, as the S&P 500 rallied after the testimony. I believe the reason the market reacted favorably was because it seems like there will be very little disruption from Bernanke’s policy. She showed that she will remain flexible when it comes to tapering QE3 and the decision on keeping the short rate near zero, where it currently sits. Again, the markets hate uncertainty and based on her testimony, it seems like she will keep that uncertainty to a minimum.

Smooth Transition

When Rep. Carolyn Maloney (D-New York) pressed her with her with questions about what it would take to cause her to consider pausing the tapering process, Yellen answered the question directly and essentially said the Fed would adjust as needed. This exchange showed she is not just going to stick to a set tapering schedule, but decisions will be data dependent. Nothing is set in stone. However, she did say tapering would remain intact for the time being and wasn’t too concerned about recent weak data on employment. I too am not yet concerned about the recent weak growth in jobs. It’s only two months of data and the overall trend in the long-term is still positive. 

Yellen was immediately put on the spot when House Financial Services Committee Chairman Jeb Hensarling challenged the Fed's wide departure from a decades-old monetary policy rule of thumb that Yellen once called the mark of a "sensible" central bank. He asked “So that begs the question today, using your words, are you a sensible central banker, and if not, when will you become one?" Her reply: "Congressman, I believe that I am a sensible central banker,” showing that she won’t be rattled by Congress, causing her to make decisions based on politics, rather than on economic data. 

In an exchange I found particularly interesting, she was asked repeatedly if the Fed was “enabling” government deficits with its massive bond-buying program, QE3. Again she was firm in the face of the grilling, answering the question in what I felt was a sensible way. “I don't think it would be helpful, either in terms of achieving the objectives that Congress has assigned to us or in terms of Congress' deficit reduction efforts, for us to purposely raise interest rates in order to weaken the economy," she said. “The likely impact of that weaker economy would be larger deficits.”

The Ongoing Emerging Markets Problem

While Yellen made it clear she understands that U.S. fortunes are now intertwined with the global economy, she said the U.S. economy is the Fed’s primary mandate. She said emerging economies don’t pose a serious risk to the U.S. economy right now, then stated the Fed is “monitoring” the situation closely. 

The confluence of events in Turkey, Argentina and Ukraine created a panic and the emerging markets experienced significant correction. However, this is different from the 1990s. Most Emerging markets have higher international reserves and lower debt and thus higher policy power. Fed tapering has created a sense of uncertainty but it was somewhat expected and investors have already rebalanced. To some extent, investors are also asking for structural reforms in many of these emerging countries. 

Emerging markets have been getting hammered with currency issues and high debt levels. Some of this could be caused by the fact that the tapering process is still intact, which will eventually lead to higher interest rates and money to move out of emerging markets and into safer, higher yielding investments. Yellen confirmed that, for the time being, tapering will remain intact which will put added pressure on emerging markets. 

The issues surrounding emerging markets, while I believe are likely overblown, did add fuel to a pullback in stocks that ended on February 3rd. The S&P 500 dropped almost 7% in a short amount of time, but has since rebounded and is almost back to where it started the year. While the situation remains fluid, at this time I agree with Yellen and don’t believe emerging markets will derail the global economic recovery that is underway in most of the developed world.

Putting it All Together

There is an argument that has been called the “Curse of the New Fed Chair,” in which some argue the markets gets more volatile when a new Fed Chair takes over the position as investors grapple with the uncertainty of the new regime. This may have also played a part in the recent pull back we have since bounced back from. But overall, I expect Yellen to be pretty much like Bernanke and expect her to continue the tapering process in a controlled, measured pace. So, as far as uncertainty goes, I believe a lot of that was taken away after her first appearance as Fed Chair in front of Congress. This year may be more volatile than last and we probably won’t see the same huge returns from stocks that we saw in 2013, but this bull market has plenty of fuel left. 



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Saturday 1 February 2014

GONG XI FA CAI to How to Invest for a Living.

WISHING ALL A     HAPPY CHINESE NEW YEAR  &
                          GONG XI FA CAI 
TO A VIBRANT STOCK MARKET AHEAD........




Ever wonder how some people seem to be able
to make money in the market no matter what?

Why some people are successful enough where they can trade for a living?


For some, it seems like a dream, akin to fantasizing about being in the movies or winning the lotto.


But for others, it's not a dream. It's what they do. And there are way more people doing it than there are famous actors or lottery winners.


But it didn't just happen overnight. It took hard work and dedication. But for most, it was likely a labor of love.


What's interesting is that, in most fields where people have reached a high level of success, you'll find that it doesn't necessarily take extraordinary smarts or some ultra-special talent to make it.


It's really just about doing things that have proven to work and then doing them over and over again.


The key is knowing what works.


But you don't need to know everything that works. Just some things that work.


(And at the same time, stop doing things that don't work.)


So what can work ?            Ans: BUY AT last purebear of ALL TIME/NEW HIGH of GroWinG stocks.

n what's GroWinG stocks ?  Ans: ALL TIME/NEW HIGH


n What's on offer here ? 

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