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What’s Next After Yellen’s “Rookie” Moment of Clarity?

Wait for the bargains sure to come when Yellen's plan accelerates


The Fed won’t be raising interest rates for another year. So said Prof. Yellen, more or less, in her “rookie” moment of clarity at Wednesday’s press briefing from the Fed meeting. But we might as well start worrying about it now! That’s the attitude of the kindergarten crowd that dominates Wall Street nowadays.

Hardly had the cameras begun to roll when the usual cast of Nervous Nellies and Panicky Pauls reached for their sell buttons, dumping any ticker symbol that seemed remotely interest rate-sensitive. Bonds, REITs, utilities, MLPs, you name it. Poor Ma Yellen. The kids didn’t really care about listening to anything she said.

Too bad for them, because only one significant item came out of this week’s Fed meeting. It wasn’t exactly a surprise, but the central bank did vote to continue paring back its purchases of bonds and mortgages—to $55 billion worth per month, from $65 billion previously.

At this rate, the Fed will be completely out of the “quantitative easing” business by the end of 2014.

It remains to be seen, of course, whether Yellen & Co. can muster the resolve to follow through on their plan. However, the direction they’re headed in is perfectly clear.

Less QE. Slower growth in the monetary aggregates. If the pattern of the past five years repeats, the pace of economic growth will slow, too, with a lag. And when the stock market senses that slowdown, we’ll get the midyear “correction” I’ve been talking about.

So I continue to counsel patience. Don’t put all your idle cash to work just yet, because chances are, many stocks and mutual funds will offer you somewhat better (lower) prices a few months from now.

Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won nine Best Financial Advisory awards from the Specialized Information Publishers Foundation

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