That hasn't stopped a big group of investors from shaking their fists at the Fed. But all the while, the investors who bet
Bernanke and company have been banking substantial gains. I think that will continue to be the case in 2013, and here's why.
You Don't Have Any Other Choices
Like it or lump it, you can't escape the Fed. While many investors turned to gold as an alternative "currency" vs. the inflated dollar, the recent breakdown in gold prices shows that everyone's favorite metal isn't exactly a low-risk option. Since before the recession, gold prices have ballooned to a 50% premium over the CRB Spot Raw Industrials Index, a basket of non-traded industrial commodities. That suggests speculation, not inflation, fueled much of gold's ascent.
There's nothing wrong with speculation, but investors have to remember that it can work in both directions. And now it is.
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When the Fed throws cash out of its helicopter, correlations in financial markets worldwide ratchet higher (or, more technically, the absolute value of those correlations does). In English, that means that it suddenly becomes nearly impossible to find a place to park your money that doesn't ebb or flow with whatever the Fed's buying.
You can't escape it -- and that makes fighting the Fed a pretty pointless proposition.
Interest Rates Are No Longer a Free Market
The Fed's impact on the interest rate market is another reason to watch Bernanke's moves in 2013.
For better or worse, interest rates are no longer a free market. Instead, the Fed clearly has its thumb on the scale.
That's why interest rates remain so low right now. With rates near zero for the long term, the common wisdom for the last five years has been that rates are due to turn higher. The market wants higher rates (and major market participants continue to bet publicly on higher rates), but as long as treasuries can catch a bid from the Fed, interest rates will continue to hug the deck.
Like a lot of other market analysts,
I've been a proponent
of the so-called "Great Rotation" from treasuries to equities for a while now, but it's failed to materialize so far because of that same flow of Fed cash. If nothing else, that's still a big catalyst for upside in stocks longer-term -- not because the Fed will eventually lose its battle against interest rates, but because Bernanke and company will eventually feel a lot more comfortable letting the market push rates up again.