The cat is out of the bag. The Fed’s pushing of liquidity (quantitative easing) has created a culture of addiction. Look no further than last week’s market action. Chairman Bernanke announced, for the first time, the Fed’s plan to eventually taper off injecting liquidity. The bond market, which has depended on the Fed to buy bonds and push up bond prices, cratered. Similarly, the stock market retreated 3%. What this finally reveals is proof that the market is not, and has not, been trading on fundamentals. It is not a good time to buying stocks or bonds wholesale.
Mr. Rodgers, CFA, has been managing money since 1988; his blogs and newsletters can be found at www.goldleafcapital.com