From Russia with Love
Last week, I suggested that readers should not worry too much. I had my doubts over whether we would see any 'rocket's red glare' over Damascus. Given the overwhelming lack of support by the American public and adverse world opinion for a pre-emptive Syrian strike, I was sure that neither congress nor the president would pull the trigger.
Now that Russia has offered to broker a deal involving the destruction of the Syrian regime's 1,000-ton stockpile of poison gas, the world gets to have its cake and eat it too.
What's not to love about that?
Although the media is arguing that President Obama has handled this international incident poorly, I'm not so sure. If Obama can pull off ridding the world of yet another potential danger without firing a shot, I say kudos to him.
Federal Reserve Appointment
The head of our central bank needs to look beyond his or her next meal ticket and focus instead on doing the best possible job for all of the country, not simply Wall Street. I believe Janet Yellen would be such a person. The White House has denied that a decision has been made, but Obama, as a lame duck president, can do what he wants. I'm hoping he makes the right choice, rather than the political one.
Next week, the Fed meets and most economists and investors believe that the much-mentioned taper will begin at that time. Depending on whatever announcement is made, the stock and bond markets could see quite a bit of short-term volatility. Pay no attention to it.
All you need to know is if the economy gains pace and unemployment does not, then the Fed is going to taper and, at some point, end its efforts at quantitative easing altogether. That will be good for the stock market and bad for the bond market. If, on the other hand, the Fed does not taper it means the economy is rolling over and unemployment will remain the same. That will not be good for the stock market longer-term.
My best guess is that the Fed will announce some minor pull-back in monetary stimulus. For example, they could decrease their $85 billion in monthly purchases of U.S. Treasury bonds and mortgage-backed securities by $10-15 billion or so.
Since this year's deficit is not nearly as high as expected, the need by the U.S. Treasury to issue bonds has been reduced.
The Fed could simply pull back their Treasury bond purchases while leaving the mortgage-backed security purchase plan the same. That would not be the end of the world no matter what the pundits may say.
Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management.
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