David Fleer
Bristlecone Value Partners, LLC
12301 Wilshire Blvd., Suite 320
Los Angeles, CA 90025 USA
Work 1-877-806-4141

Are the Monetary Winds Changing Direction?

June 20th, 2013

Based on recent statements from the Federal Reserve Chairman, Ben Bernanke, it appears increasingly likely, unless the economy falls back into recession, that the stimulus program will be phased out “later this year”.

Since the onset of the financial crisis, the Fed—alongside other foreign central banks—has been providing consistent and enormous amounts of liquidity to the economy. It has been hinting recently that it might stop doing so in a few months as long as certain conditions are realized in terms of growth, inflation and unemployment.

This has important repercussions and the lessons from history invite prudence and caution. Such reversals in the past have been very tricky to manage. Driving US interest rates higher has frequently resulted in a stronger US dollar, while gold, commodities, shares of high dividend stocks (REITS, utilities…), and emerging markets typically decline sharply. Emerging economies in particular have experienced noteworthy disruptions when US interest rates have moved significantly higher (Tequila crisis, Russia’s default…). The last 3 to 4 weeks have already seen some of these familiar patterns as markets anticipate this next move from the Fed.
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