WASHINGTON, July 9, 2014 – In its just-released minutes for their June meeting, the Federal Reserve indicated that its market-stimulating bond-buying program, aka QE3, would likely be completely wound down by October of this year. Stocks seem to have anticipated this report, and stocks remain modestly up today after this week’s nasty selling blast.
Simply stated, the Fed continued its reduction in bond-buying last month by reducing this activity by another $10 to total $35 billion. The bankers also chose to keep their targeted funds rate close to zero, again for that “indefinite period” of time. This “zero interest rate” policy is sometimes known as “ZIRP.”
Bond vigilantes and stock and bond bears pushed the market down earlier this week, piling on their expectations of more rapid interest rate hikes in addition to the continuing international threats that have kept markets tense. But if their conjectural scenario is indeed correct, today’s minutes release gave no evidence for it.
Up roughly 40 points prior to the minutes release, the Dow is now up close to 60 points at 2:15 p.m. EDT, while the broader S&P 500—followed closely by most professionals—is up a bit over 8. The tech-heavy NASDAQ is up nearly 30 points, with all averages still experiencing unusually quiet trading.
We’re keeping our powder dry, although we are adding, incrementally, to our position in Schwab’s TIPs ETF, SCHP. Investing almost exclusively in the U.S. Treasury’s inflation protected bonds, we see this ETF as a patiently acquired, long-term hedge against inflationary pressures that are currently present but masked by the Government’s dishonest statistics that don’t count fuel price hikes and grocery bills into their own inflation numbers.
We used Schwab’s ETF primarily because customers of the firm (like the Maven) can trade it without commission. Other ETFs exist as well that perform the same function, including TIP and additional vehicles exclusive to various brokerages, and perhaps they’ll be more suitable to non-Schwab customers. (And BTW, we don’t get any consideration for mentioning Schwab’s products. We’re just another customer and want to be honest about our choices in certain ETFs.)
Otherwise, we’re content for now to make an occasional foray into the Swiss gold bullion ETF SGOL. This is more of a hedge than an investment, but it makes us feel comfortable to generally have this position, given the current Washington administration’s abdication of this government’s traditional foreign policy.
Without much influence in the world these days—by the current White House occupant’s choice—the U.S. is currently ill-prepared to counter any serious, developing threat elsewhere on the globe, making a precious metals hedge all the more crucial. We must add, however, that aside from an occasional opportunistic trade in or out of gold, silver or palladium ETFs, we don’t really consider these as serious, long-term investments.
July is turning out thus far to be a seriously mystifying month for the Maven, so he advises you to be cautious as well and generally ignore the advice of both perma-bulls and perma-bears.