In a nation where temperatures will top 90 degrees today just about everywhere, I find myself suddenly consumed with thermometers. Not just the traditional ones, but the kind that also measure sentiment. More specifically, the type that gauge whether the Federal Reserve is feeling the heat, economically speaking, and getting closer to pulling the trigger on new stimulus.
Mark Luschini, chief investment strategist at Janney Montgomery says the likelihood, or easometer, is "certainly rising" but the hurdle is still pretty high before the Fed actually moves on QE3, pointing out that he was unmoved by the release of the June meeting minutes.
"I didn't think we had seen enough evidence that the economy was deteriorating, that deflation was rampant, to the point that we would bring forward the notion of QE3 just yet," Luschini says in the attached video, adding that if the jobs trend doesn't improve, the Fed will act on its promise and step in.
"The Fed won't tolerate a declining rate of employment. They're not going to wait too long and get behind the curve, if you will, to try to resuscitate economic activity" he says.
As such, the debate about more easing becomes a matter of when, not if. Whether you personally support the idea - or deplore it - investors need only anticipate the market's response to QE3. While Luschini says markets would ''receive the launch of another round of quantitative easing rather well," he worries that diminishing returns compared to the previous rounds of stimulus could make the Fed look like it's "running out of ammo."
Strategically, with Treasury yields touching new lows as risk aversion spikes higher, Luschini's strategy can be summed-up in 2 words; "income matters".
But unlike the masses who, he says, have embarked on an indiscriminate search for yield in the traditional bastions, he's avoiding Utilities (XLU) and Telecom (XTL) right now due to their clearly rich valuations, in favor of owning the 3-plus percent yields that are widely available in Healthcare (XLV), Energy (XLE) and Technology (XLK) sectors.