I recently read this article on bonds and stocks by Michael A. Gayed on MarketWatch.com and found it pretty damn interesting.
Link : http://www.marketwatch.com/story/the-biggest-risk-to-stocks-2013-05-29
A lot of what I’m about to say is going to be reiterating his thoughts, but I though I’d share them with you/ summarize to make it a little bit easier in lay man’s terms.
So this smart guy knows that when bond yields go up, stocks start hurtin’. His point is that after last week, after Bernanke’s talk about the Fed’s position and the volatility in Japan this recent confidence and stability is only an illusion. I like the way he’s looking at what the Fed is doing. Gayed stresses that the Fed is simple “confusing and conquering.” By this he means, say something that can be interpreted 100 different ways, say something confident but not too confident, but nonetheless whatever you do don’t get excited.
Now why would he and the Fed do this? The Fed is worried that stocks are gonna start taking off and forgetting about the still struggling economy. By sending mixed messages, the Fed is taking some of the umph out of the somewhat rising stocks. Gayed puts it perfectly saying “they may be able to stop the advance in U.S. averages from getting too far ahead of itself.”
Additionally Gayed also adds that the Fed should really cut down on talks about tapering if they don’t want to deflate the momentum the housing market has recently experienced over the last few quarters.
The position Gayed takes on this is a position I like. Why else would the Fed come out like this? I mean, I’d like to think they aren’t just a bunch of confusing fools and actually have a reasoning for their ways. Additionally, this stock and bond relationship is highlighted perfectly in reference to whats going on now. Preferably, I’d obviously like to see a nice balance, in tandem with the economy. But I think it’s smart that the Fed is doing what their doing so that the market doesn’t trip on its shoelaces once people realize the economy isn’t so great.
Enjoy the rest of your day!