This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

ETFs for the Fed's Effect on Housing

Stocks in this article: XLUREMVNQXHBTLTPFFDOGSHPSTTBT

On the other hand, what if the committee members vote in favor of waiting a few more months? What if they collectively decide that the economy is not genuinely strong enough for tapering just yet? What if Chairman Bernanke prefers to let a significant policy change be made by the incoming chairman, not himself?

If tapering is put on hold entirely, the Fed would effectively be inflating a housing bubble some more, sending the 10-year Treasury yield plummeting back toward the 2.6% to 2.5% level. If the Fed were to essentially insinuate that job data or the economy were not strong enough for the removal of a very modest amount of emergency bond buying, one should also expect a wave of confusion for most U.S. stocks.

The exchange-traded winners would be the interest-rate sensitive assets -- PDR Select Sector Utilities (XLU), iShares Mortgage REITs (REM), Vanguard REIT (VNQ), Homebuilders, iShares 20-Year Treasury (TLT), iShares Preferred (PFF), iShares 7-10 Year Treasury (IEF), etc.

Is it likely that the Fed will attempt to stand pat? It might be too difficult to achieve, considering how far the bond market has gotten out in front of the Fed. It is far more probable that they will taper by the smallest and most insignificant of amounts, hoping that bond yields refrain from climbing further while still bolstering stock market enthusiasm.

And then there's the most unlikely scenario of all -- but it is not beyond the realm of possibility. What if Fed Chairman Bernanke wants to make a more definitive statement prior to his exit? What if Bernanke sides with hawks who feel that "enough is enough" on the stimulus? What if instead of trying to keep longer-term rates below 3% by emphasizing the need for ultra-accommodating monetary policy, committee members exclaim that labor trends and economic trends are actually showing signs of accelerating?

And what if Fed members see the long-term trend on declining housing affordability worry about creating yet another bubble, and subsequently decide that significant tapering is needed to keep mortgage rates closer to 5% than 3.5%? Most investors would be deterred by "Large-Scale Taper" when most are expecting "Taper Lite."

A sell-off for broader U.S. stocks would be in the cards. Bond yields might also surge, creating price depreciation across the income spectrum as well. The exchange-traded winners would likely be short positions such as ProShares Short Dow 30 (DOG), ProShares Short S&P 500 (SH), as well as Ultra Short 7-10 Year Treasury (PST) and Ultra Short 20 Year Treasury (TBT).

Again, investors are likely to get what they are expecting here -- a light peppering of taper around a meager 10% ($8.5 billion) of the $85 billion. Bonds might gain (yields decrease) on a "buy the rumor, sell the news" event.

Stocks might rocket ahead at first, but they would likely come back down to earth with debt ceiling debates and earnings warnings on tap. Nevertheless, there are ETFs if the Fed goes against conventional wisdom, whether they encourage the "housing recovery" by shelving the tapering discussion, or whether they squelch speculative real estate altogether with an unusually large decrease in the amount of bonds that they purchase.



Courtesy of StockCharts.com

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.

Gary Gordon reads:

Real Clear Markets
Jeff Miller
indexuniverse
Charles Kirk
On Twitter, Gary Gordon follows:

Jonathan Hoenig
Doug Kass
Hard Assets Investor

2 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,069.71 +95.40 0.56%
S&P 500 0.00 -2.75 -0.14%
NASDAQ 4,532.1990 -17.0270 -0.37%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs