From Barron's Up & Down Wall Street, by RANDALL W. FORSYTH
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Ben's Ultimate Driving Machine
Excerpt:
Their precision handling, braking, and power instill a sense of nonchalance that lures the driver into what appears untoward behavior to others, like going 80 in a 55-mph zone, because it feels as if you're loafing even at that speed. And I hope that works if I get pulled over.
Investors have been speeding along to record highs—with a significant boost from the trillion-dollar-a-year turbocharger from the Federal Reserve. But the potential for Fed Chairman Ben Bernanke to lift his foot off the gas—to use his metaphor—has been sending markets into reverse.
Last week, U.S. stocks suffered their worst week of 2013, with the Dow Jones Industrial Average shedding 344 points or 2.2% by Friday, after posting its eighth down session of the past 10. And that, in large part, reflected the surge in bond yields on the prospect of the T word—taper—or the reduction in the Fed's $85 billion-a-month purchases of Treasury and agency mortgage-backed securities. The benchmark 10-year Treasury's yield wound up at a two-year closing high of 2.83%, up a hefty 25 basis points (one-quarter of a percentage point) on the week.
That the equity market shudders on the prospect of a taper—beginning possibly as soon as the Sept. 17-18 meeting of the policy-setting Federal Open Market Committee—isn't surprising. Wilshire Associates reckons that a cool $2.9 trillion has been added to the value of U.S. stocks since the third round of quantitative easing—better known as QE3—was announced last September. But the efficacy of quantitative easing in achieving its stated goal of spurring the economy—as opposed to asset prices—has been, at best, modest.
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