Let me conclude with a brief discussion of the Federal Reserve's monetary policy. The overall posture of policy is very accommodative, as we central bankers say, and appropriately so, in my opinion.
In earlier communications, the FOMC set a threshold of 6 1/2 percent unemployment as a condition for consideration of raising rates. In our most recent statement after the December meeting, the Committee communicated its intent to keep the short-term policy rate unchanged "well past" the achievement of a 6 1/2 percent unemployment rate. I think this, too, is appropriate. As my football field representation showed, on what you might call a qualitative basis, we have a substantial employment gap. And, as of now, the inflation data indicate disinflation, which is also worrisome.
As I'm sure you know, the FOMC decided at its December meeting to begin reducing the amount of monthly asset purchases by $10 billion a month—that is, from $85 billion a month to $75 billion. This was the well-publicized "tapering" decision to phase out quantitative easing, or QE. This decision acknowledges progress made—especially in the employment realm—and improving confidence in the outlook.
If the positive outlook I've outlined plays out, I would support similar tapering steps over the course of this year. Of course, the Committee will assess how things are going, economically speaking, at each meeting, and decide on the next step.
At the end of one year and the beginning of another, it's tempting to attribute more and deeper historic significance to the turning of the calendar page than often turns out to be real. That said, 2014 does look to me to be a year of transition.
There will be a transition of leadership of your central bank—that is certain. Janet Yellen will become chair on February 1. I do not expect the leadership change to bring a change of basic policy direction, however.
If all goes as expected, there is a policy transition under way from a QE world, so to speak, to a post-QE world. As I said, that decision was made in December.
And the economy itself seems poised to transition to better conditions. I hope I can return in a year and report I had it right.
2) Goldman Sachs' Chief Strategist David Kostin thinks the "S&P 500 is lofty by any measure."
- Did Goldman Just Kill The Music? - "The S&P500 Is Now Overvalued By Almost Any Measure" (ZeroHedge, 1/11/2013)
- AAII's Equity-Cash Allocation Spread At Widest Level Since 1998-2000 With Margin Debt 0.7% Below Its Real All-Time High (DistressedVolatility, 1/11/2013)
- Investors Haven't Been This Bullish Since The Market Peaked In 2007 (DistressedVolatility, 1/8/2013)
- What Keeps Goldman Up At Night (ZeroHedge, 1/8/2013)
- JPMorgan Reveals That Stocks Are More Expensive Now Than At Their 2007 Peak (ZeroHedge, 1/3/2013)