Start the conversation
The answer to this question has just altered dramatically, and here's why.
U.S. President Barack Obama yesterday (Wednesday) nominated U.S. Federal Reserve vice chairwoman Janet Yellen to replace Ben Bernanke as Fed chief.
That piece of news is a game changer for the savvy investors out there who've been readying portfolios for a Fed taper in the next few months. Now, the taper deadline could be pushed back for years.
Maybe even longer, according to Money Morning Chief Investment Strategist Keith Fitz-Gerald, a seasoned market analyst with decades of experience in global markets.
How Yellen Changes the Fed Taper
"The notion of an immediate taper just went out the window. I don't believe she's going to be able to taper any time before Q2 of next year," Fitz-Gerald predicted. "Yellen has made it clear she ties the QE stimulus to jobs and a listless economy. She is more focused on consumer spending, investment, and jobs."
Historically, that's not the function of the government, which – traditionally at least – instead aims to create a free market in which business can accomplish those ends.
"If anybody had any doubts that this nation is becoming socialist, Yellen's appointment ought to cement that. Yellen is a disciple of James Tobin, who very clearly believes the government is intended to fix high unemployment and poverty," Fitz-Gerald said.
In fact, there are two things investors must understand about Yellen and QE when searching for the best investments to make today.
The first is that Janet Yellen, as Fitz-Gerald said, "has never met a printing press she didn't like." In other words, Yellen will almost certainly keep the stimulus going.
The other has to do with how the markets react to multi-billions of dollars in stimulus.
Keeping up QE is like giving a junkie more drugs and telling him they will cure him.
"If it wasn't clear before that we're going to have to deal with the aftereffects of fifty years of bad economic decision making, this cements it," Fitz-Gerald said.
Then again, Money Morning stands firmly behind the idea that – in terms of investment opportunities – where one door closes, another opens…
Best Investments Before the Fed Taper
Even though we know the long-term impact of keeping the stimulus going is disastrous, there is a plus side investors can take advantage of to nab gains…
Assuming we can reinstall confidence that's been lost over the debt-ceiling debacle, there will likely be an upward grind in the markets.
In fact, following Tuesday night's Yellen announcement, the market saw immediate short-term effects when SPDR S&P 500 ETF (SPY) went up 0.4%, along with shares of major banks JPMorgan Chase & Co. (NYSE: JPM), Bank of America Corp. (NYSE: BAC), and Citigroup Inc. (NYSE: C).
Fitz-Gerald breaks it down for investors:
"Investors should do three things: 1) Find companies that are largely immune from Washington; 2) that pay high dividends; and 3) that will give you a good place to act defensively while Washington steps all over itself."
In line with these points, look to built-in global hedges, along with diversified cash flow and the stability afforded by competent management. The key is dividends.
"I also like the specialized inverse funds against the S&P 500 itself and the broader bond markets," Fitz-Gerald recommended. "The cost of insuring U.S. debts is rising and once stalwart buyers, like China, are warning us to get our house in order. This speaks to confidence potentially failing."
In light of Yellen's nomination, now is the time to make some adjustments to your portfolio accordingly. Stay tuned to Money Morning for more investing advice and recommendations as these stories unfold…
- Money Morning:
Fed Strategy from Mohammed Ali
- Money Morning:
Keith Fitz-Gerald Nails It on Today's FOMC Meeting
- Money Morning:
What the QE Taper Will Do to the Market