Ben Bernanke… I Love Your Package

The end is near! (for the Federal Reserve’s stimulus package)… but not really. With U.S. Stocks reaching highs and Treasury yields at close to all-time lows, some investors are beginning to speculate that the Bear market will be coming around sooner than later. Everything depends on how and when the FED will change its $85 billion monthly bond buying program which has infused the economy with “cheap-to-borrow-money”. Investors such as John Brynjolfsson, managing director of the hedge fund Armored Wolf LLC, have been bracing for what they view as an impending decline of the U.S. Economy by buying put options on the S&P 500.

I personally don’t believe the FED will change its monetary policy in 2013 due to its target unemployment rate; 6.5%. The current rate sits at 7.7%, reflecting a 0.2% drop over the period of approx. 5 months. I cannot claim to be well aquainted with the field of economics but the FED has repeatedly stated that they have no intention of changing their current policy until the target unemployment rate is met. If inflation is kept in check and the FED does not prematurely withdraw its program, faith in the economy will prevail. As an unspoken rule of the market says… Don’t fight the FED.

Evan Chang

Source:

http://online.wsj.com/article/SB10001424127887324685104578390893470777874.html?mod=WSJ_hp_LEFTWhatsNewsCollection

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