Breakout

A Dovish Fed = Risk On, Right? Not So Much

Breakout

It wasn't that long ago that Fed watching was such an important skill and lucrative occupation that investors used to actually try to game the system based on the girth of former Fed chief Alan Greenspan's briefcase as he walked into policy meetings.

Today, the Fed is not only more transparent and available, its meetings for the next year are set to be "the most boring thing to cover on the planet," says Jeff Kleintop, chief market strategist at LPL Financial. "There is no way they're going to be doing anything over the course of the next year."

This was clear Wednesday in the aftermath of the central bank's staggered decisions and commentary throughout the afternoon. The more Bernanke spoke, the more tweaks and thresholds he laid down, the less the markets liked it.

"I think the market got quickly disillusioned that the Fed was communicating some new extended amount of stimulus," Kleintop says, when in fact, it wasn't.

Welcome to the new club Fed, where everything is just like you remember it. Same management. Same design. Fresh coat of paint.

As Kleintop and many other market watchers are quick to point out, the normal inclination to embrace risk and not fight the Fed and its stimulative ways has been dwarfed by the fiscal cliff. Even Bernanke himself is talking up his mortality and limitations, Kleintop says, arguing that with all the intervention in the world "it's not nearly enough to offset the impact of the drag and tax increases and spending cuts associated with the fiscal cliff."

In the meantime, Kleintop is looking for only modest growth and returns next year and is just biding time until "good news becomes bad news" if unemployment keeps falling, and the rate increase/monetary extraction problem comes into view.

"By the end of 2013, the Fed will have $4 trillion in assets on its balance sheet," he says. "That's 25% of GDP being held by the Fed. That's a big nut to try and unwind come 2015."

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