The Attack of the Taper | Q3 2013

The following contains excerpts from the July 18, 2013 President’s Letter from Roger Hewins.

 

Executive Summary

With the US equity markets seemingly headed for another good quarter, and with bonds continuing to offer record low yields, an attempt in May by the Fed to prepare the market for a potential future change in Fed Policy caused a short but significant panic, sending bond rates soaring and, as they say, “roiling the equity markets.” The end result was a sharp increase in long-term interest rates and a bad quarter for bonds across the board, while US equities eked out a gain. The surge in the US dollar exacerbated equity market losses abroad, although the losses were modest. Net net a more or less flat quarter for a broadly diversified portfolio, after all that excitement.

 

The Tapir

A tapir is a large browsing mammal with a short, prehensile snout, weighing up to 700 pounds and able to move surprisingly fast given its bulk and awkward appearance. Tapirs inhabit jungle regions in much of the world and, though it is an herbivore and normally shy of humans, this beast can be dangerous when provoked.

tapir

In his famous first book “Bring ‘Em Back Alive,” a huge best seller that catapulted him to world fame and was translated into many languages, Frank Buck tells of his adventures capturing exotic animals, including a fearsome encounter with a Tapir. As he was trying to medicate one of these animals, it made a sudden terrific charge, hitting him in the stomach with its head and knocking him down. Then the enraged beast jumped on him, pounded him with its hind legs, and dragged him around its pen. Happily, Buck’s native helpers came running to his rescue.1

Which brings us to Fed Policy this year…

 

The Taper

bernanke“Ben Shalom Bernanke is an American economist and currently chairman of the Federal Reserve, the central bank of the United States.”2

This normally gentle man roiled world markets this past quarter when he suggested that what has come to be called “The Taper’ might be coming at some point this year or next, when the Fed might, just maybe, not exactly stop buying bonds and printing money, but merely “taper’ their purchases somewhat. Panic immediately ensued.

So how did we get here, what is the background, and what comes next? And why do we own bonds anyway?

 

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional. Hewins does not provide tax, accounting or legal services.
Roger Hewins
Roger Hewins

President

Roger Hewins is the President of Hewins Financial Advisors, based in North Palm Beach, FL. Roger has more than 30 years of experience in investment management, helping bring the sophisticated financial advice typically reserved for large institutional clients to everyday investors, from high-net-worth individuals and families to small businesses and retirement plans.

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The Attack of the Taper | Q3 2013

time to read: 2 min