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Our -- beginning at the end of the Federal Reserve stimulus program may be at hand as officials and -- -- Map out a strategy for winding down there 85 billion dollar -- month.
Bond buying program but as the markets have taken off with the -- building up of this portfolio will markets go the other way when the Fed winds down.
And how do you position your own portfolio editing changes.
Joining us now to explain Berkeley's head of US equity portfolio -- very.
That very great to see we've been talking about this for -- what happens when the Fed makes the exit now they've been making some really strong signs that they're getting ready to.
At least slow down the purchasing a little bit.
Today the markets took it in stride are you surprised they handled so well.
Now I'm that the bond markets had a pretty good that we have seen yet we payrolls were targeted by words I don't stock market -- but the bond markets and I -- react.
Absolutely in -- way we thought about this is.
As that the growth outlook improves.
The bond market will back up the first thirty basis points or fifty basis -- to show is probably good news if it's driven by growth expectations.
This started with payrolls it's followed through would jobless claims and retail sales so initially the stock market takes it in stride there's -- point though where.
The first thirty or fifty basis points is good news but then we start to worry about.
The effects of normalizing policy and so much about 2% in ten year treasuries and we may very well get to that point now defense.
As it can dial this thing back and forth between body you know.
Purchasing bonds in purchasing less bonds and it's going to be very aware of what the bond market and stock market is doing.
And in fact Richard Fisher who's not a big fan of all the bond purchasing even he says.
I don't want to go from wild Turkey.
Too cold Turkey he told the Wall Street jerk so even Richard Fisher wants to do with slow will they do it slowly enough and carefully enough so they can avoid a real serious downtrend.
What we need history would tell us yes and and the reason I say that is in 198394.
They dialed back following big easing cycles -- -- growth outlook was improving we had 7109%.
Stock market corrections.
Pullbacks were sharper than that in 2010 and 2011.
When they had an expiration date on -- we want and an expiration day on QE2 we have much larger corrections.
But those were not they were not really pulling back because.
Things are getting better they were pulling back if they had an expiration date on the plans so.
This would more likely look like 9404 where yes you get an equity market correction but.
It's hard week.
And from there the other side of it typically is very good equity market -- are -- corrections delineated in sectors that is -- do some sectors do better than others sure absolutely typically what what suffers during the correction is.
Did domestically leverage cyclical sectors that were all of out why when the -- got to that point the first -- -- -- is no our finance self financials ended in consumer discretionary there retailers.
These other companies that are generally doing better when the growth -- improving and then they get hit and that correction.
But after -- corrections done they do behind Bob.
So far I've been buying up a lot of J&J and PNG and so forth should I be selling that now thinking that the corrections coming well no probably knows what for staples in particular.
I would perform pretty well in that pullback because of data type of facts okay what Jack you do what -- the other side to what's most interesting for me is.
In 94 the tech sector barely went down that was the beginning of the -- both.
In 2004 the energy sector actually went up during that correction that was the beginning of the energy -- And so.
The cyclical sector that will likely be the best performer coming out.
Could very well be industrials it could be enterprise -- The.
You know Intel Cisco is in all of the world had -- you are not recommending those names is using them as examples of enterprise -- we do think capital spending will come back.
And and improve further and so those parts of the economy.
Those sectors are probably hold up pretty well even in -- fed related -- finally treasury yields what's gonna happen to the yields is as we begin to see the -- get serious about pulling back up all the -- -- for sure but unlike the last few cycles where.
The Fed fed policy was all about rate hikes to further and is still going to be pegged for a time even if they keeper the purchases.
They would then have to follow up -- drain liquidity from the banking system.
Long before they can actually raise the overnight rate on reserves or raised the Fed Funds rate so.
The conference -- And treasury rates will go up but the -- that front end is -- they can only go up so much they're give me Iraq but I just gonna -- win -- is -- is gonna happen when is it likely to have well look another month or two of data like we've seen in the last few years.
And down you'll see this this discussion heat up freely significantly Barry Knapp from Barkley it's very thank you very much currency appreciated listening.
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