Market Fear #5: Trouble out of Washington
Click to Enlarge Two big catalysts are looming out of the capital: Another $10 billion taper of QE3 by the Federal Reserve at its policy meeting next week (as the unemployment rate keeps collapsing) and the return of the debt ceiling fight in February (which will start with President Obama’s State of the Union address next week).
The debt ceiling fight isn’t really being talked about yet, but it soon will. Expect partisan rancor to reach new heights as Republicans and Democrats play hardball heading into the 2014 midterm elections.
Additional tapering will put further pressure on emerging markets equities and currencies, but the Fed has little choice but to continue the taper as the unemployment rate falls through their targets (driven mainly by people leaving the workforce), as inflation is poised for a bounce on higher food prices (driven by the drought in California) and as wages tick higher (as businesses have a harder time finding workers).
For now, I continue to recommend investors seek safe havens, such as Treasury bonds (shown above). The leveraged Direxion 3x Treasury Bond Bull (TMF) is up 8.4% since I added it to my Edge Letter Sample Portfolio on Jan. 10. My short in Best Buy (BBY) is up nearly 40%. Overall, the Edge Portfolio is up 15.1% this month vs. a -2.2% loss for the S&P 500.
As of this writing, Anthony had recommended TMF long and BBY short to his clients.