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The Pain Trade Is Headed Higher: Heather Hughes


Last Friday saw a double-shot of good economic news, continuing a run of numbers that have some investors worried about an end to Quantitative Easing in early 2014.  On the employment front the Bureau of Labor Statistics reported 203,000 jobs added to the economy in November, handily ahead of expectations.  The unemployment rate was also much better than anticipated at 7%, the lowest in 5 years.

Heather Hughes of SunAmerica says investors are worried about missing even more gains during the balance of 2013.  “The fear now is missing a potential upside move in the market rather than a correction,” offers Hughes in the attached video. “The path of least resistance seems to still be to the upside.”

As for taper talk, Hughes sees some institutions stepping away from the U.S. and into some of the lagging international markets.  There’s been some $1.4 billion yanked out mutual funds in the last few weeks.  It’s not a major trend shift but enough to suggest more upside panic is possible, particularly with the bullish seasonal bias surrounding December.

For much of 2013 the tape has been ramping higher for weeks followed by weak pullbacks and consolidation.  Naturally this will end in the long-awaited correction, but unless or until that happens the best trade has been buying dips.  The negative catalyst is seldom something the majority of investors expect.  Quantitative Easing has been a boon for markets but it would be hard to find anyone who doesn’t anticipate an end to the program sometime in early to mid-2014.

Just as in boxing, it’s the shots that you don’t see coming that do the most damage.  Investors looking for something to be scared about would be better served by looking someplace more off the beaten path than a QE taper.

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