Thursday, September 13, 2012

Joining Club Zero

As has been my investment thesis for four years now, the powers that be will do whatever it takes to ensure that failure is not an option (for now). Last week is was the ECB and this week it's the Federal Reserve Bank. According to an excerpt from the FOMC Statement released today -
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.

The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.

These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
And the stock markets continued their bullish response to further central bank easing. The S&P 500 closed today at 1460, up 1.6% from yesterday. But on the other hand, gold prices also continued to climb even further, up almost 2% to close at 1768. That's troubling to me.

So, while many investors whose jobs depend upon generating alpha are jumping into equities after this Fed announcement, I'm doing just the opposite. I only answer to myself, and I'm content at my achievements so far. The risk of seeking alpha in equities seems too great for me at this time.

I've moved my last remaining equity position into cash today, and am fully invested in money-market funds. I've made a great return on my investments over the past four years, and now I'm happy to sit back, see what transpires in the near term, and have my portfolio saved by near-zero returns.

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