Our Comments on Markets Prior to the Fed Announcement
Dr. Richard Michaud wrote the following on September 6th. On September 9th, we sent it to our investment clients:
“The August labor report just came in today. It is a bit weaker than expectations and July and June revisions were downward, some significantly. While no one can predict what the FOMC will do, I think it is fair to say no one will be predicting a startup of serious tapering of the stimulus process very near term. It would seem that the sequester continues to bite into the nascent U.S. economic recovery spurred by the Fed through its QE3 program. As a consequence, if tapering is to happen in any measurable way, it is still some way off. However, it is also true as far as I know that no credible macroeconomist has suggested that the Fed’s stimulus program should continue indefinitely. So at some point tapering will occur and the stimulus program will end. At that point there will be a significant loss of purchasing pressure that will affect current interest rates.
“Our current deliberations have been grindingly thoughtful. The consequence of these deliberations has been that we have important changes to make in our portfolios specifically to provide further protection to future changes particularly in global credit markets. At this time, these modest changes will be beneficial to the portfolios in the light of the future known risks of tapering and terminating the Fed’s stimulus program.”