Comment on the September 18th Fed Announcement

The Federal Reserve’s announcement of continuing the stimulus program without change surprised many investors and pundits.  The media is much guilty of the hype surrounding the September announcement.

In a note sent to our investors on the 9th we indicated that the most likely scenario in our view was that the Fed would continue the stimulus program unchanged and that tapering may still be some months away.  Our discussion noted that the August labor report was weaker than expectations and that the labor report for July and June were revised downward significantly.  In addition the sequester continued to limit growth and the recovery while major political risks and economic shocks including the threat of a government shutdown and treasury credit default may be imminent.

Many investors view the Federal Reserve’s policies as simply printing money that will have to be paid back at some future point, and the market’s often positive response a sugar high that will deflate with an end to the stimulus program.  Our view is that the stimulus program has been a necessary pump priming process of economic activity consistent with sound macroeconomic principles that may require continuation in some form for some time.  Current capital market valuations may largely reflect economic reality relative to contemporary risk factors.

Our strategic portfolios continually undergo careful assessment of market and economic risks with the objective of making them the financial equivalent of earthquake resilient with our uniquely effective global diversification technology.  A Fed program that carefully encourages sustainable economic growth may have minimal impact on a well-diversified global strategic portfolio relative to an investor’s level of systematic risk.

About the author

Dr. Richard Michaud is President and CEO of New Frontier Advisors, LLC.  He earned a PhD in Mathematics from Boston University and has taught investment management at Columbia University.  He is the author of Efficient Asset Management (1998, 2nd ed. 2008 with Robert Michaud), a CFA Research Monograph (1999) on Global Asset Management, and numerous academic and research articles available on and  He is co-holder of four U.S. patents in portfolio optimization and asset management, a Graham and Dodd Scroll winner for his work on optimization, a former editorial board member of the Financial Analysts Journal, associate editor of the Journal Of Investment Management, and former director of the “Q” Group.

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