As quarterly earning announcements continued to be better than anticipated markets reacted with fears of sooner than expected FED tapering. Of course, as the month has continued a complete understanding of GDP figures, an increase in unemployment numbers, a decrease in small business optimism, and the European Central Bank’s unexpected lowering of rates limited the potential of tapering talk during the beginning of Janet Yellen’s confirmation hearings.
Those confirmation hearings began this past week with an uninspiring testimony by Yellen in front of the U.S. Senate Banking Committee. Part of Yellen’s underwhelming talk can be attributed to the confirmation hearing process itself, the fastest way to confirmation is not by suddenly adjusting policy or stepping on the toes of those who ultimately approve your position, but some must be attributed to the recent global economic announcements.
That’s right, Global. The U.S. has for years mentioned that it is neither the world’s police nor the world’s bank, however the U.S. dollar continues to be the main currency of word trade and the U.S. financial markets the center of investment. Therefore, any perceived tightening of money supply would have far reaching effects which the rest of the world has admitted it is not ready to handle.
Remember the expectation of most FED watchers going into the September meetings? It seemed that everyone agreed tapering would begin because the U.S. economy was experiencing sustainable growth. International and Emerging market countries made a last minute effort to inform FED officials of the potential impact of any tapering. The FED refused to start tapering and international economies showed signs of optimism.
The U.S. economy is certainly not in the position it was back in September. We have gone through a Federal Government shutdown, had two additional months of building cash on corporate balance sheets, and an overall positive earnings announcement season. These events have strengthened the opinion of the private sector in its ability to survive FED tapering, but the ECB sent a clear signal to FED officials in the other direction.
Given the mix of information available and a shortened holiday shopping season it is likely that the FED will not begin serious tapering talk until the March 2014 meetings. In the meantime, U.S. equity markets continue to look cautiously attractive, with more selective investments available internationally. Fixed Income investments are more difficult to judge because short-to-mid duration bonds lack liquidity.
Overall we continue to believe in an intentional investment process with an appropriate level of diversity meant to assist you in creating more enjoyable moments that span generations.