The Herald Bulletin

Morning Update


December 13, 2013

'Big Joe' Clark: What will history say about 2013?

As this year wraps up, it will indeed be one for the history books.

While current conversations and reflection aim at equity returns and all-time market highs, years from now, the discussion will be far more targeted toward fixed-income assets and the Federal Reserve.

Janet Yellen will replace Ben Bernanke as the new Federal Reserve chairperson in 2014. She will be the first woman to fill that position, and she will also be the first to have moved from second-in-charge to the chair role. The longtime expression is “not to fight the Fed,” and she will be the leader who has to navigate Fed policy for the next years to come.

The financial crisis in 2008 led to tough financial decisions and reactions. Staring in 2009 the Fed began to expand its balance sheet in the form of QE, or quantitative easing.

That means the federal reserve began buying assets from the marketplace and putting cash — lots of cash — on the street. We have now gone from QE1 to QE4.

The decision by the Fed to expand its balance sheet by buying assets has pushed interest rates to a level that produces no return, and Ms. Yellen has promised that will be the case to come for at least two more years.

At some point, she will make the decision to discontinue or slow the asset purchases, which currently places $85 billion a month into the markets.

We believe she will be data dependent, and the recent strong economic numbers from employment to GDP reports should help aid her in the decision to cut back, or what is commonly called “taper,” the federal reserve’s investment.

The first questions: Should she taper and, if so, when? The answers depend very much on your vantage point.

If you are a person who has saved assets at the local bank trying to be safe and secure in your future, then you absolutely want the madness to come to an end sooner than later.

If you happen to be an investor in equities, then you are enjoying the party. You may wake up with a nasty hangover, but for now the music still plays.

The hangover will come — according to most experts — in the form of inflation. Remember, the classic definition of inflation is too many dollars (all that QE has certainly produced that part of the equation) chasing too few goods.

The economy, both from the consumer and the corporate levels, the last few years has shown no capacity for demanding anything. As a result, the Fed has provided the cash, but consumers and companies alike have actually de-leveraged.

We are all using the lower rates to reduce our obligations, or at least the interest rates we are paying, thanks to the Fed’s low-rate policy initiative.

For certain, the future is coming. Be certain to change with it.

Joseph “Big Joe” Clark, whose column is published Saturdays, is a certified financial planner. He can be reached at or 640-1524.

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