Waiting for Bernanke: Likely news on Fed tapering today

Nervous markets await the secret word. Photo: Ben Bernanke/AP file

WASHINGTON, September 18, 2013 – Wall Street looks to open tepid to mixed Wednesday morning after a positive but lightly traded day Tuesday that left most averages close to their all-time highs. But trading will also be light and likely directionless this morning as stock and bond investors nervously await the Fed’s statement to be issued on or around 2 p.m. EDT today.

Hopes and fears center around what is widely viewed to be the likely beginning of the end of the Fed’s long-running stimulus program, currently known as QE3. It’s proved a major boost for U.S. home prices, and many economists worry that policymakers might withdraw their aid too soon, dealing a blow to the housing recovery.

Borrowing costs have soared by more than a percentage point since late May on views the Fed will soon slow its $85 billion per month in buying of mortgage-backed securities (MBS) and Treasuries.

Surprisingly, in spite of the nervousness on rates, MBA data showed 30-year mortgage rates have eased 5 basis points to 4.75 percent, after last week matching the 4.8 percent high for 2013. Also good news: the home refinancing index jumped 17.9 percent to 1,801.7 after a plunge last week brought the index to its lowest since June 2009.

U.S. builders have recently broken ground on the most single-family homes in 6 months, seeking the most permits in 5 years after the industry appeared to be slowing in an earlier report.

As the 2 p.m. announcement approaches, the trading direction on Wall Street should start to move one way or the other, in anticipation of when, or even if, the Fed will start “tapering,” or starting to cut back on its bond buying program. A gradual move is likely already built into the averages as well as current bond prices, which may even have gotten a bit ahead of themselves.


SEE RELATED: Shocker! Summers pulls out of race for Federal Reserve chair


“Tapering” the purchases of Treasury instruments while continuing to purchase mortgage issues would be viewed as bullish for the housing market and the market in general. A larger move could cause the market to take a hit, however.

In any event, in spite of the fact that it’s illegal, elites in the know will have learned about the Fed’s policy in advance of the announcement, which is why market moves from roughly 1 to 2 p.m. may give regular investors an early tip as to which way things will go later in the afternoon.

In other news, of particular interest to DC grocery shoppers was yesterday’s action in Safeway (SWY), a major grocery store chain. Its stock price jumped $2.95, or more than 10 percent Tuesday to $30.99 after the company announced an unnamed investor had bought a significant amount of its shares. Safeway said it adopted a “poison-pill” defense measure to thwart any hostile takeover attempt.

Safeway was badly damaged years ago by an unneeded and unwanted leveraged buyout. Its then-purchasers loaded the company with debt before dumping the stock back on the market. It took the grocer years to restore its balance sheet.


SEE RELATED: Unemployment, Syria, taper remain Wall Street’s usual suspects


    —AP contributed to this report

Today’s trades.

None. Unless you need to hedge by writing covered calls against positions you want to hold, today’s market moves are so uncertain that any move at all is likely to be the wrong one. The markets are nearly short-term overbought as well which, if they surge today, likely will cause a down-move later in the week.

These issues plus another likely Federal budget impasse and the imminent arrival of Obamacare signup time, could dampen any initial enthusiasm.

After a Labor Day lull, the IPO market is starting to heat up again. Mexican discount airline Volaris (VLRS) was priced last night at $12, the bottom of its range. But interest was said to be high for this dual Mexican and American exchange listed IPO. Disclosure: we went in for some shares but were not allocated our full request, which tends to confirm demand for the shares was strong.

An additional and potentially attractive IPO set to price on September 19 is computer security firm FireEye (proposed symbol: FEYE). According to its prospectus, the company has invented a purpose-built, virtual machine-based security platform providing real-time protection to enterprises and governments worldwide against the next generation of cyber attacks. It’s a hot area and interest for this one is also likely to be strong.

Caveats, though, via SeekingAlpha: FireEye’s top exec currently rakes in a salary of $6—that in a company that has yet to achieve a profit. Which in itself is a caveat. That said, the company might at least be worth riding for a while, so we’re putting in for shares of this one as well. We’ll find out on the morning of the 20th whether we get any or not.

These and other IPOs are, unfortunately, coming at a very uncertain time for market trends and could disappoint. However, if you invest in IPOs, which we occasionally do, you have to scoop them up when they’re on offer, whether the over all market tone is good or not.

Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.

Follow Terry on Twitter @terryp17

 


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Terry Ponick

Now writing on investing, politics, music, movies and theater for the Washington Times Communities, Terry was formerly the longtime music and culture critic for the Washington Times print edition (1994-2009) before moving online with Communities in 2010.  

 

 

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