NEW YORK ( ETF Expert) -- U.S. Treasury bonds via iShares 7-10 Year Treasury (IEF) have gotten off the mat and moved higher over the course of five days. The SPDR Gold Trust (GLD) has resumed its downtrend by falling below a 50-day trend line, and WisdomTree Dreyfus Emerging Currency (CEW) has rallied strongly in September.
Meanwhile, most of the beneficiaries of a Federal Reserve commitment to the suppression of lending rates -- homebuilders, timber producers, real estate investment trusts -- have headed the leader board over the last week.
|Taper Lite: Markets Believe That The Fed Will Barely Rein In Its Bond Buying|
|Approx 5 Day %|
|Real Estate Related|
|SPDR Homebuilders (XHB)||6.0%|
|Guggenheim Global Timber (CUT)||4.4%|
|SPDR DJ REIT (RWR)||4.1%|
|Precious Metals Related|
|Market Vectors Gold Miners (GDX)||-6.8%|
|iShares Silver Trust (SLV)||-4.3%|
|SPDR Gold Shares (GLD)||-2.8%|
|WisdomTree Dreyfus Emerging Currency (CEW)||2.2%|
|CurrencyShares British Pound (FXB)||1.5%|
|PowerShares DB Dollar Bullish (UUP)||-1.5%|
|Market Vectors Intermediate Muni (ITM)||1.5%|
|PIMCO 25+ Year Zero Coupon Treasury (ZROZ)||1.3%|
|iShares Barclays 7-10 Year Treasury (IEF)||1.1%|
Frankly, I think investors have mostly interpreted the likelihood of Fed action (or inaction) correctly. Supposedly, the Fed is responsible for two things -- steady employment and modest inflation. The worst labor force participate rate since 1978 is indicative of employment woes, not vibrant job growth, while exceptionally flat wages stoke the debate over whether inflation or deflation is the primary concern; either way, inflation is below Fed targeted levels.
Topping it all off, budget standoffs in Washington mean there is zero chance of fiscal stimulus, leaving the monetary authorities to do any of the heavy lifting.Don't misunderstand. If it were up to me, I would have ended the emergency quantitative easing back at QE1 and allowed the economy to heal on its own from there. So I am not advocating endless bond purchases with electronic money printing. Nevertheless, it is clear to me the Fed has little reason to slow its purchases substantially other than to break our collective addiction to unnaturally low lending rates. The Fed simply does not have the stomach or wherewithal to break that addiction with a major tapering. Indeed, one should expect an exceptionally modest tapering, a token gesture, if you will. My "guestimate" is 10%, or $8.5 billion less, leaving the institution still in the market for the acquisition of a whopping $76.5 billion in U.S. debt each month. Moreover, I expect the Fed to acknowledge increasing weakness in the job market, which may be interpreted by investors as a sign that the Fed will not continue tapering activity until 2014 at the earliest. Clearly, the seven-day stock market rally for the S&P 500 is largely tethered to a belief that the Fed won't be very active on Sept. 18. That said, there is a wide range of possibilities that might prove the bets of market participants as well as my "guestimate" wrong. Add the potential for the federal government to create yet another debt ceiling debacle, and I am content to keep plenty of cash on hand. It may be difficult to be patient for selloffs, but patience is required for long-term investing success. Follow @etfexpert This article was written by an independent contributor, separate from TheStreet's regular news coverage.