|Written by L.A. Little|
|Monday, 28 January 2013 07:00|
For about two years the consensus view is that bonds would sell off, interest rates would rise and that this Fed induced bubble would burst. For two years folks have been wrong. Although we are not at a price point where the consensus view would be fulfilled, we are nearing it now. There are two ways that this could happen. One is that the Fed backs off the pedal and quits supporting the market and to some degree that is happening not because the Fed isn't buying but they have decided to buy other things like MBS. The other way it could happen is that confidence in the ability to get your money back erodes and if that erodes those giving the money will demand more for the risk they take. That is a different problem and a loss of confidence can escalate if unchecked. That's the real risk the Fed runs when manipulating all these markets - a loss of confidence.
So far they have done well to reinvigorate risk taking when none was to be found. They have made the alternatives worthless and forced that decision making process. How they unwind all these policies when the time comes will be as interesting as the was the unveiling of them all. Just how does one unwind trillions of dollars of artificial demand? Beats me. Fortunately I don't have to figure out how to do that but instead figure out how not to get run over by the moves that occur as a result of that policy shift and - naturally - I have to find a way to benefit by it if at possible. You have the same task. That is what protecting and growing your nest egg involves.
Today we see more "good" news with durable orders up-ticking and the bullish euphoria continuing to bubble. A cautious guidance by CAT causes that stock to rise as well and given its weighting in the DJIA, that index is the leader this morning before the bell.
When will some sanity return since, after all, it's going to be hard to produce these kinds of gains throughout the year. If we did, the market would be up 60% by year end. I don't think that is possible so we have to assume some sellers will appear at some price point so realize that before you go off and buy more at these marked up price points.