What’s For Breakfast?

My 12 year-old daughter, Maeve, has challenged me to run the Falmouth Road Race with her. Because I am a competitive type of guy, I can’t let a 12 year old beat me – even if she is family. So, I am in training and like everyone else in training, breakfast is part of my morning routine. Almost every day, after getting up way too early to go for my morning run, I settle in with two newspapers and a meal of two hardboiled eggs and a whole grain English muffin. Add in a couple of cups of coffee, and I am ready for any challenge of the day. I like things to be consistent and predictable.
However, every once in a while I change it up a bit. I add some bacon or some leftovers from dinner the night before, but I always ask myself before I do, how it will make me feel later. Will I still be on top of my game after I eat it? If not, then I could find myself lacking patience, be mildly miserable, and I could end up with a significant lack of interest in tackling problems that surface.
Obviously, it would not affect my routine tasks. It is the new issues, the problems, the ones that always get bounced around the office without a defined answer that could cause my challenging mood to be an issue.
This raises an important question for common folk like myself: What did Ben Bernanke have for breakfast?
The reason I ask is because the Federal Reserve is scheduled to meet again this week and every time Ben Bernanke calls a meeting, the world and financial markets are on edge to see what might happen. While nobody knows what the market is going to do going forward, the impact that the Fed’s stimulus, the “QEternity” (1), has had on the markets, is hard to ignore. “QEternity” is the continuous Fed spending.
It doesn’t matter which Qualitative Easing (QE) you look at. Each time the Fed has announced a new form of stimulus, the markets have gone up. When the stimulus money started drying up, the markets began to fall. As the money flowed, so did the gains. When the money ran dry, the markets rolled over. So, based on what we have seen happen already, it would appear that if the Fed decides to continue printing money at the same pace, everything should be right with the world.
However, we all know what will happen when the Fed stops pumping billions of dollars into the markets each month, and when the music stops, none of us want to be the one without a chair to sit in. But no one knows when this will happen because the Fed is eight months into a program that has no defined limits or boundaries.
Every previous Fed program has had defined parameters with a limited amount of funding and a defined time frame. This clarity allowed market participants, for better or worse, to plan out their approach to investing. All of this came to an end when “QEternity” was created.
I know the questions Cutter Family Finance readers are asking. How long will the “QEterninty” last? Well, that’s a surprise. Are they going to change the mix between Treasuries and mortgage-backed securities? Not sure about that. Will the eventual decline in volume happen quickly or slowly? Yeah, they’ll get back to us on that.
Could it come down to what Ben had for breakfast? What happens if he has bacon with his eggs and it does not sit well with him? What happens if he is not on top of his game the day the Fed meeting starts?
I received a call from a client of mine today. He asked me why we transferred his portfolio to cash. I explained that the markets hate surprises and that Ben is just full of them. I told him that the minutes from the last Fed meeting showed that several voting members were interested in slowing the current money printing program, starting as soon as June . That’s now! When those minutes were released, the markets went into a tizzy. In the weeks since those minutes were released, there has been endless speculation about what the Fed will do at its next meeting, which as I told you, is this week. This speculation has been fueled by each new economic release, and has led to a dramatic increase in market volatility.
We are now full circle to what these people had for breakfast.
The near-term future of the markets basically rests in the hands of these few people, and depends on how they “feel” about things, since there are no clear parameters for making decisions about when and how much money to print.
It’s like they all had Mexican food for breakfast, and we’re sitting around to see how they feel. I don’t know what the Fed will decide at their meeting, but I know I’m feeling queasy already. Pay attention and be alert, because You Deserve More!