Taper jean girl

June 17-21, 2013

AMERICAS

Market Comments:  The hope that the Fed will calm markets this week led to a strong opening on Monday, but fell mid week after Bernanke said that bond purchases would likely moderate later this year and end mid-2014 – “if the incoming data are broadly consistent” with its economic forecasts – with a 7 per cent unemployment rate acting as a threshold for Fed policy.

One must wonder why investors seems caught off guard by this shift.* 

Markets ended slightly higher on Friday, after several days of losses. On Friday, the CBOE Volatility Index, a gauge of anxiety on Wall Street, fell 8 per cent to 18.86. On Thursday, it jumped 23 per cent and closed above 20 for the first time this year.

Companies:  Icahn bought more shares of Dell, offering yet another deal to shareholders to purchase the company. He is now the second largest shareholder after Michael Dell. 

Otherwise: The G8 kicked off this week, with the issues of trade, transparency and tax addressed by global leaders. Shell companies, tax avoidance by MNCs and a transatlantic free trade area were all discussed.

And, on the subject of tapering:  Investors have been reacting to negative news as good - a sign that more stimulus will be put into markets from the Fed. Remember, however, that:

Bad is not good.  Good is good, unless your timeframe is the lifespan of fly.

EMEA

Osborne hinted Lloyds would return to private ownership this year, while RBS needs further restructuring. The state holds a 39% stake in Lloyds, ad 81% in RBS. While many think it is about time to sell the government's share, one must wonder whether it is fair to sell these when share prices are so low. Really, the government will be buying high, and selling low. This suggests it is politics only driving this move.

This week, the banking commission was released. The recommendations are far ranging, knit together by the notion that what really failed in the financial crisis was the culture of banking.

*My personal opinion is that while the economy is growing in the US, growth more evident in nominal terms, rather than real terms. This sends mixed signals. Additionally, while the US economy is growing, the global economy is still weak, and markets and economies are interconnected. Finally, QE was meant to reduce unemployment. As employment is now increasing up, it makes sense to taper regardless of other, less positive, economic data investors are looking at.   

*Taper Jean Girl by Kings of Leon chosen to reflect Bernanke's comments on tapering QE.