Kass: Headlong to New Highs
This column originally appeared on Real Money Pro at 7:49 a.m. EDT on Sept. 16.
Never mind that the probabilities of a military engagement and a Summers nomination were decreasing on a daily basis last week, as opposition to both intensified.
As a result of the news, futures are at an all-time high this morning.The consensus view is that bond yields and the price of gold will head lower -- I have an out-of-consensus view that bond yields will drop -- and stocks will head higher. Indeed, every message and analysis I have received from the sell side is unanimous in view. Every one. But there are negatives, mostly of a longer-term kind. But who really invests for the long term anymore? Most importantly, decisions in Washington, D.C., have become too damn political, which is not good for the long term. Moreover, what is the real significance of a more accommodative Fed (likely) under the leadership of Janet Yellen when there is ample evidence that quantitative easing is losing its effectiveness? Finally (and arguably), QE is creating distortions in both the bond and equity markets. Which gets us to the FOMC decision this week. The odds are high that a light tapering is forthcoming and that this move will be accompanied by language that will attempt to convince financial markets that scaling back asset purchases is not a policy change but rather just a technical adjustment. It is clear that a growing amount of research from within and outside of the Fed have questioned the efficacy of QE. As well, Fed voting members want to make a graceful exit from its asset purchase program. As the chief architect of QE, Chairman Bernanke would prefer to start to wind down ahead of his January 2014 departure. Though Fed officials will never admit it, they must be thinking that there are real/growing costs to its policy of transparency. Of course, for the capital markets, the tapering will be quickly followed by the budget deadline and all the divisiveness from our leaders (on both sides of the political pew) surrounding it.
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