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The release of the December FOMC meeting minutes makes clear one thing: the U.S. Federal Reserve does not have a plan for the course of the stimulus reduction it announced last month.
On Dec. 18, the date of the last FOMC meeting, Fed officials announced a winding down of its $85 billion in monthly bond purchases per the quantitative easing (QE) stimulus program.
Beginning in January, the Fed was to taper its bond-buying program by $10 billion per month.
Additionally, it was to reduce its purchases of long-term Treasury bonds from $45 billion a month to $40 billion, and mortgage-backed securities from $40 billion a month to $35 billion.
But investors looking for a predictable plan for the pace of asset-purchase reductions will have to keep guessing – the FOMC meeting minutes reveal the Fed itself doesn’t have a clue.
“I like that the market has gone up during the stimulus, like anyone else, but let’s not confuse that with economic health,” Money Morning Chief Financial Strategist Keith Fitz-Gerald weighed in. “Fundamentally, there are significant cracks in the system, and I haven’t heard one word of how the Fed will get itself out of this. There is no ‘Plan B’, and they’re making it up as they go along.”
What The FOMC Meeting Minutes Tell Us
Indeed, the December FOMC meeting minutes reveal Fed officials are uncertain about the future of the stimulus and how it should be structured, nor do they have any contingency plan should it falter. All we know is that the Fed will likely cut the purchases “in further measured steps at future meetings,” assuming the economy continues to advance.
The markets reflected the feeling of uncertainty today, both before and after the minutes’ release.
Stocks were mixed this morning amid swirling fears that the Fed might choose to rein in its stimulus more aggressively than it did in December. Just an hour before the 2 p.m. FOMC minutes’ release, the Dow Jones Industrial Average was down 0.47% to 16,452.56, while the Nasdaq Composite Index rose 0.28% to 4,164.73. Standard & Poor’s 500 Index remained flat at 1,836.88 (a 0.05% decline).
The markets had a muted reaction after the minutes’ release, holding on to earlier losses with little change.
In light of today’s FOMC info, investors should employ this course of action to play the Fed…
The Fed and Investing in 2014
The Fed doesn’t have a plan of action, nor does it have a backup plan of action. And the government is out of control.
That means two things for investors.
First, whether you like the Fed’s actions or not, you should be along for the ride.
“I said this in 2009, and it’s just as true today: if the markets are going to be manipulated, you want to be with the guy who is doing the manipulating,” Fitz-Gerald said.
The secret is finding companies that have expanding earnings growth and strong balance sheets and are leveraged against interest rate risk.
Second, you have to have a ready-for-anything plan at all times.
“We talk extensively about the need for trailing stops, use of specialized inverse funds,” Fitz-Gerald said of his subscriber-based investing service The Money Map Report. “We act when the market gives us important buying opportunities.”
As long as the Fed is pumping up market gains, investors should be there to take advantage.
“You’ve got to grab the bull by the horns – you can’t afford not to play,” Fitz-Gerald said.
The next FOMC meeting takes place Jan. 28-29. Before then, investors can look to Friday’s U.S. Labor Department December jobs report for some economic clues.
And keep in mind that starting out 2014 focusing on these three key numbers is the best way to compound your 2013 gains …