Fed Shocks with no Tapering
Following the FOMC meeting in the US this evening, UK time, and the surprise announcement that the US is not going to pull back on the amount of monthly Quantitative Easing, we have held a late investment committee (IC) meeting to ensure the information was discussed and conclusions garnered immediately. The conclusion of the discussion / debate and conclusion by the IC is that the defensive stance we took on the 6th September, to protect clients assets against the uncertainty caused by Syria and the prospect of tapering, needs to be reversed, immediately.
Our logic is based on the dual data set that reflects the Syrian situation has been removed as Geo Political issue as well as the US Tapering risk to the market, being shocking on the downside, and as a result of the removal of these combined potential significant events, we believe that we can again focus on the long term investment objectives rather than trying to protect capital values, against significant valuation reductions. What is surprising is that the US have delayed Tapering because Unemployment and job growth is not as strong as anticipated and have effectively reversed the forward guidance they gave in June making a mockery of the whole forward guidance as it is not supposed to be constantly changed, as that would defeat the object of it. It is their prerogative though and with the news and the prospect of the New fed Chair being very pro QE the markets have taken the combination of data as a positive, and the markets have rallied in the US and we expect the European markets to rally tomorrow.
There are still risks and the most significant is the debt ceiling debate that will undoubtedly cause volatility, but there always will be risks and we continue to monitor, but as the significant event risk that we were concerned about being Syria and Tapering have now dissipated we believe that the risk of a significant pull back that could depress investor confidence and potentially put the global recovery back a step, have been removed.
We will therefore be reallocating our allocation to non-cash assets over the coming days.
If anyone has any questions please contact a member of the team immediately.
Please remember the whole point of Outcome Based Investing is to focus on delivering the Outcome and Protecting capital as the second objective, before trying to beat the market. On this occasion our stance was, with hindsight, too protectionist but as we are the guardian of our clients wealth and predominantly managing all of it, or the majority of it, we believed that protecting capital as an objective was greater than riding the roller coaster on this occasion. I personally liquidated my portfolio and would not and could not leave a clients’ assets invested whilst I had removed my risk and based on the same set of risks, we would make the same decision.
We appreciate, that if you look tonight at the markets, that we lost a bit of growth over the very short term, but it does not change our focus that being wrong means we will still achieve outcome and have protected capital. The alternative would have been disastrous, if Syria had developed differently and Bernanke had not done a U turn.